28 June 2023

SDCL Energy Efficiency Income Trust plc

("SEEIT" or the "Company")

Announcement of Annual Results for the year ended 31 March 2023

 

SDCL Energy Efficiency Income Trust plc (LSE: SEIT) ("SEEIT" or the "Company") today announced its financial results for the year ended 31 March 2023.

Highlights

·      Net Asset Value ("NAV") per share^(APM) of 101.5p as at 31 March 2023 (31 March 2022: 108.4p), which includes a reduction of 7.3p from 70bps increase in weighted average unlevered discount rate in the year

·      Investment cash inflow from the portfolio^(APM) of £85 million, up 31% on a portfolio basis^(APM) (2022: £65 million)

·      Aggregate dividends^(APM) of 6.0p per share declared for the year ended 31 March 2023, in line with target (March 2022: 5.62p)

·      Dividend cash cover^(APM) of 1.2x for the year to 31 March 2023 (March 2022: 1.2x)

·      Target dividend[1] of 6.24p per share for the year to March 2024, a 4% year-on-year increase

·      Loss before tax of £18.6 million for year to 31 March 2023 (31 March 2022: Profit of £79.8 million), includes unrealised loss of £81 million from discount rate increases

·      Portfolio valuation^(APM) of £1,100 million as at 31 March 2023, up from £913 million at 31 March 2022

·      Investment of c.£240 million in new and organic investments and existing commitments during the year and a further c.£30 million invested since the year end

·      Carbon savings of 1,202,528 tCO₂ (March 2022: 1,060,617[2] tCO₂) from Company's portfolio

 

Tony Roper, Chair of SEEIT, said:

"This financial year has been marked by global economic instability as a consequence of the war in Ukraine, which has impacted discount rates and market valuations of all London-listed, income-oriented investment companies. SEEIT is no exception. However, the subsequent rise in energy prices has led to a growing focus by governments and corporates on the critical requirement to save energy. Demand for on-site generation, efficient distribution, and energy use reduction solutions continues to grow substantially. The Investment Manager has remained selective in making new investments, while focusing on unlocking additional value from the existing portfolio as it seeks to deliver attractive risk-adjusted returns for investors."

 

Jonathan Maxwell, CEO of SDCL, the Investment Manager said: 

"SEEIT has continued to generate solid levels of cashflow from its geographically and technologically diversified portfolio. Energy efficiency projects and solutions are a critical part of the energy transition. Generally, they offer major advantages in terms of speed and cost of implementation compared with new sources of utility generation. Specifically, energy efficiency projects that are delivering services to end users offer value enhancement opportunities. For SEEIT this means that value can be added by enhancing its existing portfolio and by investing in organic pipeline. More and more private and public sector counterparties are focused on meeting carbon targets, cutting costs, and enhancing energy security and resilience. SEEIT is ideally placed to invest in these solutions."

 

For Further Information

 

Sustainable Development Capital LLP Jonathan Maxwell Purvi Sapre Eugene Kinghorn Tom Hovanessian	T: +44 (0) 20 7287 7700
Jefferies International Limited Tom Yeadon Gaudi Le Roux	T: +44 (0) 20 7029 8000
TB Cardew Ed Orlebar Henry Crane	T: +44 (0) 20 7930 0777 M: +44 (0) 7738 724 630 E: [email protected]

 

 

 

About SEEIT

 

SDCL Energy Efficiency Income Trust plc is a constituent of the FTSE 250 index. It was the first UK listed company of its kind to invest exclusively in the energy efficiency sector. Its projects are primarily located in the UK, Europe and North America and include, inter alia, a portfolio of cogeneration assets in Spain, a portfolio of commercial and industrial solar and storage projects in the United States, a regulated gas distribution network in Sweden and a district energy system providing essential and efficient utility services on one of the largest business parks in the United States.

 

The Company aims to deliver shareholder value through its investment in a diversified portfolio of energy efficiency projects which are driven by the opportunity to deliver lower cost, cleaner and more reliable energy solutions to end users of energy.

 

Past performance cannot be relied on as a guide to future performance.

 

Further information can be found on the Company's website at www.seeitplc.com.

 

Investment Manager

 

SEEIT's investment manager is Sustainable Development Capital LLP, an investment firm established in 2007, with a proven track record of investment in energy efficiency and decentralised generation projects in the UK, Continental Europe, North America and Asia.

 

SDCL is headquartered in London and also operates worldwide from offices in New York, Dublin, Hong Kong and Singapore. SDCL is authorised and regulated in the UK by the Financial Conduct Authority.

 

Further information can be found on at www.sdclgroup.com.

 

 

 

 

 

 

CHAIR'S STATEMENT

On behalf of the Board, I am pleased to present the annual report and financial statements (the "Annual Report") for the SDCL Energy Efficiency Income Trust plc ("SEEIT" or "the Company") for the year ended 31 March 2023.

This financial year has been characterised by global economic instability, driven by high power prices, high inflation, rising interest rates and energy price volatility in the wake of Russia's invasion of Ukraine. Government interventions in energy markets responded to this environment with varying degrees of success. An energy crisis was followed by a liquidity and banking crisis as inflation, interest rates and bond yields rose quickly in the second half of the year, accompanied by recessionary concerns in major markets where the Company is active. A low interest rate, low inflation environment is unlikely to return in the short term.

Higher risk-free rates, and higher costs of capital, have fed through into the market valuations of all income-oriented investment companies listed on the London Stock Exchange. Generally, share prices moved from a premium to a discount to net asset value across the listed infrastructure sector.

The Board and the Investment Manager have reflected the higher interest rate environment in the Company's valuation assumptions at the year end. SEEIT's NAV per share declined to 101.5p in the year to 31 March 2023 and the Company recorded a loss before tax of £18.6 million, largely as a result of increases in discount rates applied in the valuation but including certain project specific adjustments described in Financial Review and Valuation Update.

The Company owns a large, diversified portfolio of energy-efficiency assets, which provide several opportunities for future growth. Our assets reduce energy wastage and are focussed on providing essential energy services often to essential industries. The range of technologies in SEEIT's portfolio creates opportunity to provide a wide variety of energy solutions to end users, helping them cut costs; reduce their carbon footprint; and improve resilience.

One consequence of the tragic Ukraine war and its impact on energy markets has been a growing focus by governments and corporates on how to save energy. We believe that energy efficiency should be considered one of the three main "pillars" of infrastructure investment, alongside but distinct from (i) renewable energy and (ii) social and other infrastructure. More detail on what distinguishes energy efficiency is in Investment Proposition.

 

Portfolio and Financial Performance

The portfolio, as a whole, generated sufficient cash to comfortably cover the Company's dividends paid in the year.

During this financial year, levels of volatility in global energy markets not seen for many years, and regulatory responses to them, created both short-term and "one-off", setbacks for some of SEEIT's investments. Both SEEIT Oliva and Värtan Gas were materially impacted by higher fuel costs combined with regulatory changes that have since been updated or appealed. At the same time, some investments, such as Primary Energy, Värtan Gas, Onyx and Future Energy Solutions faced specific operational challenges.

Details in relation to the operational performance of specific projects and asset management initiatives undertaken during the year are outlined in Portfolio Summary.

While SEEIT's portfolio is positively correlated to inflation over the medium to long term, in the short term, increases in labour costs impacted returns on certain investments. Although most of the debt financing at the project level in SEEIT's portfolio was secured on fixed terms or hedged at relatively attractive terms, rising interest rates increased some project-level borrowing costs.

Notwithstanding these challenges, several investments have also made progress, with for example RED-Rochester, Onyx and EVN all presenting opportunities to deliver additional long-term value.

The Investment Manager is focused on outperforming the Company's return target. In an environment characterised by a higher cost of capital, and given the upside performance potential from the portfolio, we remain confident that the Company can meet or exceed its stated target net total return of 7-8% per annum[3] from its IPO price over the medium to long term.

 

Capital Structure

The Company secured successfully the equity capital it needed through a £135 million fundraise conducted in September 2022, shortly before capital markets effectively closed. We are grateful for the support that shareholders have given SEEIT since its inception.

This fundraise, along with the existing revolving credit facility ("RCF"), underpin the capital position of the Company, allowing it to manage liquidity, invest in growth across existing portfolio projects and, as suitable opportunities arise, make attractive new investments.

The Company continues to pursue a low-gearing^(APM) strategy relative to the wider infrastructure peer group, with consolidated outstanding debt across the Group representing approximately 32% of NAV as at 31 March 2023, in line with the Company's medium-term structural gearing^(APM) target of 35%. We do not have any near-term refinancing risk. Further details in relation to the Company's existing leverage can be found in Financial Review and Valuation Update.

As we are more focused on value enhancement from the Company's existing portfolio and our organic pipeline than on sourcing new investments, our existing liquidity is considered sufficient for the foreseeable future.

 

Investment Activity

The Investment Manager has been focused on initiatives within the existing portfolio, which involves identifying sources of additional revenue, reducing costs or investing incremental capital for accretive returns. Planning and implementation of these initiatives takes time, and while some value enhancement activity has been recognised in our current valuation of the portfolio, the majority will not be recognised until its implementation is proven.

During the year, SEEIT invested c.£121 million into six new investments and commitments and a further c.£119 million into organic follow-on investments and commitments across 16 existing portfolio projects. Since the year end, a further two new investments of c.£4 million, plus a further £26 million in follow-on investments across four existing portfolio projects have been made. Details of these investments are provided in Portfolio Summary.

The Investment Manager continues to focus on new opportunities associated with our existing portfolio (the "organic" pipeline) typically at rates of return above our stated investment objectives, as opposed to acquisitions of new projects in the market. Opportunities for capital growth could also include utilising the capacity the Company has to increase selectively its exposure to construction and development phase investments.

SEEIT generally approaches investment opportunities with the intention to acquire and improve assets and will thus typically hold an investment to the extent that it is consistent with total return targets and until value has been optimised. The Company will contemplate disposing of assets opportunistically or via targeted sales where it considers that doing so would deliver value to shareholders. SEEIT materially exited one investment during the financial year, through early repayment of its loan to the Biotown green gas project in the United States at a return above expected return for this investment. Disposals of less strategic or smaller projects, where a third party could derive greater value, are being evaluated.

 

Dividends

In line with previous guidance, in June 2023 the Company announced its fourth interim dividend for the year ended 31 March 2023 of 1.50p per share, providing an aggregate dividend of 6.00p per share declared for the year ended 31 March 2023, which was fully covered by net cash income.

Based on our assessment of current cashflow forecasts, the Company is announcing new dividend guidance of 6.24p per share for the year to 31 March 2024 (an increase of 4%) and as before, targeting progressive dividend growth thereafter.[4]

 

Share Price and Buyback Programme

As noted above, rising interest rates had a major impact on the valuation of listed infrastructure since September 2022, compounded by a dislocation in markets where demand from buyers did not match pressure from sellers, particularly those needing to raise liquidity to manage redemptions.

We do not believe that SEEIT's recent trading price reflects the value of the portfolio or its total return prospects and took proactive steps to address this.

On 3 April 2023, the Company announced a share buyback programme in response to the discount at which its share price traded relative to its reported NAV per share^(APM). As at the date of this report, the Company has deployed c.£14 million of the £20 million total buyback allocation.

 

Corporate Governance and Stakeholder Engagement

The Company held its Annual General Meeting ("AGM") on 12 September 2022, at which all resolutions were duly passed by shareholders. The Articles of the Company provide that a continuation vote be put to shareholders at the first AGM following the fourth anniversary (which falls in the current year) of initial admission and, if passed, at every third AGM thereafter.

Investment companies undertake continuation votes alongside share buybacks as a means, inter alia, for discount control. Share buybacks can be an effective means of managing short-term dislocations between price and value. Continuation votes provide investors with the ability to mitigate any long-term fundamental problems with value itself. The Board recognises the importance of this mechanism for shareholders and believes that there is no fundamental concern with the Company's prospects and our ability to deliver value for shareholders. Despite the current macroeconomic situation, we believe the Company is well positioned, with substantial scale and a diversified portfolio able to deliver attractive returns. Further details of the Company's first continuation vote will be provided to shareholders in the notice of the 2023 AGM.

The Investment Manager hosted a Capital Markets Day on 14 March 2023 at the London Stock Exchange. The event explained the key market drivers for energy efficiency and provided greater insight into some of the Company's larger holdings.

The Board was pleased to visit SEEIT Oliva in Spain during the year and was able to engage directly with members of the management and operations teams at one of SEEIT's larger portfolio of investments to understand the key risks and growth drivers of the projects concerned.

Over the past few months, I have met with some of SEEIT's larger shareholders to discuss their expectations and collect feedback on the performance of the Company. These meetings have been helpful in shaping the Company's disclosure in this Annual Report, which we have revised and expanded, both at Company level and at project level for our larger investments. The Investment Manager and I look forward to continuing regular dialogue with investors going forward.

 

Outlook

SEEIT is well positioned to be able to unlock long-term growth opportunities from its established and diversified portfolio of investments. Energy efficient technology is a critical part of the energy transition because its implementation is typically much quicker and cheaper compared with the time and cost to develop new sources of energy generation. 

More and more private and public sector counterparties are focused on meeting carbon targets; enhancing energy security and resilience; and seeking to better manage energy price volatility. Demand for on-site generation, efficient distribution, and demand-side reduction solutions continues to grow substantially.

The Investment Manager has remained selective in making new investments and continues to evaluate organic and inorganic investments that can deliver attractive risk-adjusted returns for investors. The Company remains well capitalised, with a strong balance sheet and low levels of gearing^(APM) relative to the infrastructure investment company sector.

The Board recognises the current challenges facing UK-listed investment companies, and is working with the Investment Manager to ensure that SEEIT manages and adapts to the current market dislocation evident across the sector. Our objective is to provide top quartile levels of disclosure to help investors better understand current performance and the long-term prospects of SEEIT, which we expect will evolve. I would like to thank personally all our shareholders for their continued support of the Company, and I look forward to continued engagement in the year ahead.

 

Tony Roper

Chair

 

 

COMPANY OVERVIEW

SDCL Energy Efficiency Income Trust plc ("the Company" or "SEEIT")

SDCL Energy Efficiency Income Trust plc ("the Company" or "SEEIT") is the first listed company in the UK to invest exclusively in the energy efficiency sector. The Company's objective is to generate an attractive total return for investors, comprising stable dividend income and capital preservation, with the opportunity for capital growth.

The Company's current portfolio comprises assets across the United Kingdom, Europe, North America and Asia. The Company is a FTSE 250, closed-ended investment company incorporated in England and Wales that was admitted to the Official List and to trading on the London Stock Exchange's Main Market on 11 December 2018.

Sustainable Development Capital LLP ("SDCL" or "Investment Manager")

Sustainable Development Capital LLP ("SDCL" or "Investment Manager") is a London-based investment firm with a proven track record of investment in energy efficiency and decentralised energy generation projects in the United Kingdom, Europe, North America and Asia. SDCL was established in 2007 and has a team of over 50 professionals across offices in London, Dublin, New York and Singapore.

With over 15 years of sector experience in energy efficiency, SDCL has specialist origination, project development, execution, ESG, asset management and portfolio management teams with support from finance, compliance and risk. Since 2012, the Group has raised over £2 billion in capital commitments, including seven funds, all exclusively focused on energy efficiency.

SEEIT Management

The Company has been established in the United Kingdom as an investment trust to provide shareholders with access to investment into energy efficiency infrastructure investments. The Company has an independent Board of Directors and has appointed SDCL as Investment Manager to manage the investments on its behalf.

The Company makes its investments via its sole direct subsidiary and main investment vehicle, SEEIT Holdco Limited ("SEEIT Holdco" or "Holdco"). 

The Investment Manager controls the actions of Holdco and its direct and indirect subsidiaries manage the existing investments that Holdco has directly or indirectly invested in. Holdco typically invests in project special purpose vehicles ("SPVs"), which provide energy efficiency solutions to counterparties through long-term contracts with a fixed lifespan. An SPV - and by implication the portfolio of investments as a whole - therefore normally has a limited lifetime over which it provides target returns to Holdco and ultimately the Company. These SPVs are structured so that they can be sold in an active secondary market for energy efficiency assets although each of the investments will also have been assessed individually to ensure appropriate alternative exit strategies are in place.

 

INVESTMENT PROPOSITION

Investment Objectives Generate an attractive total return for investors, comprising stable dividend income and capital preservation, with the opportunity for capital growth.
Cashflows underpinned by contracts[5]	Operational investments have an underlying contract for energy services
	Targeting to limit and manage exposure to merchant power pricing over medium to long term, mitigating risk where possible
	Targeting to limit and manage exposure to counterparty demand risk and regulatory risk over medium to long term, mitigating risk where possible
Creditworthy counterparties	High proportion of investment grade counterparties
A diversified, mostly operational portfolio	Well diversified by geography, technology, project and counterparty
	Exposure to construction and development stage assets limited to 35% of GAV
Aiding net zero transition	First LSE listed company to invest exclusively in energy efficiency projects
	Government policies highlight role of energy efficiency in mitigating climate change
	Sustainability considerations integrated into all processes and operations
Total Return Opportunity	Scale of portfolio provides pipeline of follow-on investments
	Asset management initiatives can generate incremental cashflows from long-term accretive investment opportunities
Low gearing strategy	Medium-term gearing(APM) target of 35% of NAV
	Gearing(APM) limit of 65% of NAV available for short-term funding of new investments

Energy Efficiency: The Third Pillar of Infrastructure Investment

Energy efficiency is considered the third pillar of infrastructure investment, alongside but distinct from renewable energy infrastructure and social and other infrastructure. It can be distinguished from other classes of infrastructure in part due to the operational features associated with energy efficiency assets. In addition, energy efficiency investments usually benefit from relatively low levels of exposure to energy price fluctuations and policy factors such as price caps, which can affect traditional renewable energy infrastructure assets from time to time.

Comparing Types of Infrastructure

	Energy efficiency		Social and other infrastructure		Renewables
Heritage	Emerging investment class		Established investment class		Growing investment class
Assets / technology	CHP Units, lighting projects, behind-the-meter, etc		PFI/PPP, hospitals, toll roads, utilities, broadband, schools, etc		Grid-connected wind farms, solar farms, etc
Typical counterparty	Commercial and industrial or government entities		Public sector entity		Utilities
Key risk	Counterparty credit		Political / regulatory		Subsidy / energy pricing
Typical construction periods		Short: Within 18 months and often within 3-6 months	Long: 2+ years, sometimes extending to several years	Medium: 1-2+ years
Role in energy transition		Important, particularly in short term	Not directly tied to energy transition	Important

 

SEEIT BUSINESS MODEL   

SEEIT invests in a portfolio of energy efficiency assets and platforms designed to deliver a total return underpinned by long-term contracted cashflows that cover a growing dividend. SEEIT assesses investment opportunities based on defined characteristics that apply to projects across its portfolio. A project must typically:

1)   fit the definition of an energy efficiency investment;

2)   have, or will follow, a specified contractual structure with a suitable counterparty or counterparties; and

3)   have the potential to generate accretive returns through asset management and follow-on investments.

 

STRATEGIC REPORT: THE COMPANY

OVERVIEW

Why Invest in Energy Efficiency Key characteristics of the energy efficiency investment proposition include some, or all, of the following: § behind-the-meter projects with identifiable end users and counterparties; § quick to integrate and install, lowering construction risk; § results in carbon emissions reductions and helps to improve energy security and reliability, while cutting energy costs for end users; § predominantly contracted cashflows, with managed exposure to merchant power pricing; § nature of operational projects and relationships with counterparties creates opportunity to improve total return through asset management initiatives, expansion of services for customers and management of costs; and § low gearing relative to other forms of infrastructure investment.

Market Landscape A challenging macroeconomic environment has hurt asset values across the listed infrastructure space in the short term due to: § sharply rising interest and discount rates; § extreme volatility in energy prices and commodity prices; § high levels of inflation, driving labour, construction and operational costs; and § Delay in supply chain and planning capacity. Notwithstanding these headwinds, energy efficiency is expected to benefit over the medium to long term from policy tailwinds supporting investment in the sector. Further detail on the market landscape and policy tailwinds for energy efficiency can be found in The Investment Manager's Report.

Asset Management Initiatives Focus on unlocking additional value from the existing portfolio. Examples include: § short-term accretive project investments, together with a long-term investment plan to optimise performance and asset life across the RED-Rochester portfolio; § investment in project development, including at EVN as well as the newer, low carbon solutions represented by Turntide (energy efficient motors), Iceotope (data centre cooling); and § working closely with new management at Onyx to progress the development pipeline. Further detail on the Company's asset management function can be found in the Investment Manager's Report.

Portfolio Performance, Pipeline and Exit Strategy During the year, headwinds from the macroeconomic environment as well as short-term operational challenges at certain projects impacted on the Company's portfolio valuation. However, The Investment Manager was able to unlock long-term value in certain projects. A detailed summary of the portfolio performance is outlined in the Portfolio Summary. Focus during the year has been on value enhancement from the Company's existing portfolio and organic pipeline. The Investment Manager continues to evaluate exit opportunities for certain investments where it believes more value could be delivered to shareholders versus holding the assets to maturity in line with its typical investment strategy. Further detail on the portfolio performance in the year is outlined in Portfolio Summary and the Company's pipeline and strategy in relation to disposals in The Investment Manager's Report.

THE INVESTMENT MANAGER'S REPORT

Market Landscape and Macroeconomic Factors

In the current landscape, energy efficiency is providing essential solutions to a growing list of global issues.            

Net Zero

Market Backdrop/Overview The Intergovernmental Panel on Climate Change (IPCC) published its most recent synthesis report in March 2023, warning that the world is approaching "irreversible" levels of global heating and emphasising that it is "now or never" to limit warming. Reaching net zero greenhouse gas ("GHG") emissions over the next few decades will be critical to avoid the worst impacts of climate change, such as more frequent and intense heatwaves, droughts, floods, and storms.

Importance of Energy Efficiency  Energy efficiency is critical to reducing GHG emissions by reducing energy demand and waste. According to the International Energy Agency ("IEA"), energy efficiency represents more than 40% of the emissions abatement needed by 2040. Energy efficiency initiatives in multiple sectors, including industry, buildings, appliances and transport, are prioritised in the IEA's Net Zero Emissions by 2050 (NZE) scenario due to their easy implementation and high scalability. These measures are anticipated to play a prominent role in reducing energy demand and its related emissions from now to 2030.

 

Energy Security

Market Backdrop/Overview Following Russia's invasion of Ukraine, the global energy landscape changed dramatically, with high prices and supply chain disruptions highlighting the energy security risks associated with relying on polluting fuels supplied by a few major external producers. Extreme weather conditions such as hurricanes, heatwaves and wildfires are also posing challenges to energy infrastructure, leading to power outages and supply chain disruptions. Additionally, the introduction of variable renewable energy generation is posing structural changes in the generation profile of electricity systems, potentially impacting the grid's ability to provide a reliable energy supply, unless and to the extent it is balanced by alternative generation, storage and demand reduction.

Importance of Energy Efficiency  Energy efficiency plays a crucial role in addressing energy security concerns that arise due to geopolitical conflicts, extreme weather events and infrastructure constraints. By reducing energy consumption and dependence on fossil fuels, countries can reduce their vulnerability to supply disruptions caused by conflicts or infrastructure failures. Furthermore, energy efficiency measures such as demand response programmes and energy storage technologies help to tackle the energy security risks posed by ageing infrastructure and renewable energy capacity additions.

 

Energy Prices

Market Backdrop/Overview Energy commodity prices hit multi-decade highs in most countries following the pandemic and the Russia-Ukraine war, remaining unstable ever since. Average gas prices increased in 2022 to the highest on Eurostat's record, from €7.8 per 100 kWh in 2021 to €11.4 per 100 kWh, while the USA consumers paid 14.3% more for electricity in 2022 than in 2021. High energy prices have led to inflation and slowed economic growth, impacting energy-intensive industries, transportation costs and consumers.

Importance of Energy Efficiency  Energy efficiency is a vital solution to increased energy prices as the solutions reduce demand for energy and therefore reliance on fossil fuels, minimising the impact of price fluctuations. For example, energy-efficient building retrofits can reduce heating and cooling costs, which can provide relief to households and businesses struggling to pay their energy bills. Energy-efficient transport solutions such as electric vehicles can also help to reduce fuel costs and mitigate the impact of rising energy prices on consumers.

 

Inflation and Discount Rates

Global inflation rates underwent significant volatility during the financial year, although economic indications suggest we have now seen the peak of the cycle. The 2022 calendar year saw 8.8% global inflation per the IMF.

Central banks around the world have responded to the spikes in inflation by raising interest rates. This was compounded by turmoil in the banking sector towards the end of the financial year, following the collapse of Silicon Valley Bank and take-over of Credit Suisse, which put pressure on banking company balance sheets.

The Company reflected the movement in discount rates across the infrastructure sector, having raised underlying rates by 50 bps (on weighted average unlevered basis) at the 30 September 2022 interim period and a further 20 bps at 31 March 2023, following independent discount rate reviews across SEEIT's whole portfolio.

Rising interest rates have had a significant impact on the listed infrastructure investment company sector - not just in terms of short-term pressure on discount rates, but also from a yield competitiveness perspective, as alternative fixed income investments, such as government bonds, have become comparatively more attractive. SEEIT, along with nearly all members of its wider listed infrastructure peer group, has experienced a decline in share price because of these factors, leading to a period of trading at a discount to NAV per share^(APM). The Board and the Investment Manager are focused on managing this discount through investor engagement and measures such as the recent share buyback, and continue to build a compelling portfolio proposition which offers attractive returns to shareholders over the medium to long term.

 

Inflation Linkage Strategy

Approximately half of SEEIT's current portfolio by value has revenues that are partly or wholly inflation-linked, which culminates in an overall positive inflation correlation. Therefore, higher than expected inflation has had an overall small positive impact on the Company's returns during the year.

The Company's projects are in a number of different geographic regions, which diversifies and mitigates the impact of inflation volatility for the portfolio. The Company has the highest overall exposure, by country, to the USA at 59% by Gross Asset Value^(APM) ("GAV"), followed by the UK with 20% and the rest of Europe with 20%.

The Investment Manager aims to construct and maintain a portfolio that generates year-on-year revenue growth on a progressive basis. The Investment Manager does not exclusively target investments with fully inflation-linked returns, but inflation correlation is a relevant metric when evaluating new investment opportunities and when re-contracting existing projects within the portfolio.

The portfolio includes some flexibility to recontract certain non-inflation-linked revenues periodically during a project's lifecycle. Some examples the Investment Manager actively works with project management teams to implement include:

·      at Värtan Gas, individual customer contracts are re-evaluated on an annual basis. Typically, historic inflation and short to medium-term inflation is a key consideration when setting customer tariffs; and

·      periodic re-contracting of revenue contracts is assumed in the Primary Energy projects, providing an opportunity to recover inflation exposure on costs or introduce direct inflation linkage.

 

SEEIT's Ability to Adapt to Changing Market Conditions

The Investment Manager has sought to construct a resilient portfolio with defensive characteristics through its contractual structures and credit quality of counterparties.

Counterparty credit is a key risk that the Investment Manager has focused on when constructing the portfolio. As at 31 March 2023, c.62% of the portfolio by investment value (March 2022: 60%) is associated with investment grade or equivalent counterparties. Those which are non-investment grade are typically highly diversified or providing vital services, often via essential industries. Since listing, the Company has not suffered any material credit defaults across its portfolio.

SEEIT maintains a relatively low level of gearing^(APM) versus the wider infrastructure investment company peer group, with total Group and project level debt leverage as at 31 March 2023 of 32% of NAV, in line with the medium-term target of 35% of NAV.

These qualities seek to ensure that whether the Company is operating in a high inflationary environment, a high interest rate environment, a volatile merchant pricing environment or a recessionary environment, overall portfolio cashflows can remain relatively predictable over the medium to long term and downside risk is mitigated.

Notwithstanding these contractual protections, the Investment Manager's asset management team also works closely with the senior management teams within its portfolio project companies to address the impact of changing market conditions on operations. This includes, for example, rising labour costs in certain markets in which SEEIT operates. Labour is actively managed at a project level through a number of initiatives, which include but are not limited to, apprenticeship schemes and comprehensive succession planning strategies at both RED-Rochester and Primary Energy.

Supply chain challenges have also been a prevailing issue across a number of industries, particularly in the wake of the Covid-19 pandemic. The Company is seeking to leverage its procurement power across its portfolio, with the Investment Manager connecting certain project company procurement teams such as UU Solar and Onyx in order to improve their ability to secure key equipment. In addition, forward purchasing of equipment has always been a key part of the Company's procurement strategy, with regular review of stock inventory and consideration for lead times in all procurement activity at a project company level.

Policy Tailwinds for Energy Efficiency

USA

The Inflation Reduction Act ("IRA"), passed in August 2022, is the most significant climate legislation in US history, offering funding, programmes and incentives to accelerate the transition to a clean energy economy. The climate and energy industries are central to the overall financial support extended under the IRA, committing c.$369 billion to the energy transition and climate change mitigation. A sum of $47 billion has been earmarked for tax credits for rebates for energy efficiency in buildings (commercial and residential). By 2030, the Act will help cut US greenhouse gas emissions by roughly 42%.

The IRA introduces tax credit support for clean energy generation, storage and transmission, which is a crucial development for renewable energy projects. The legislation provides certainty and continuity for clean energy incentives, benefiting decentralised energy generation assets like Onyx Renewables. Along with the IRA, another significant policy development is the Bipartisan Infrastructure Law ("BIL"), which was signed in November 2021 and will provide more than $1 trillion in federal investment to improve the nation's infrastructure. Of the $550 billion of new funding provided in the BIL, approximately $76 billion is committed to be invested in energy.

Overall, the recent focus on energy efficiency in two of the most significant infrastructure-spending bills ever passed in the USA has made investment opportunities in the country increasingly appealing for SEEIT. The Company is monitoring changes in policies in the USA and evaluating areas where legislative support is applicable for both new and existing investments.

European Union

Throughout the year, the European Union has been working on several legislative packages to guide member states through the energy transition.

In May 2022, the European Commission published the REPowerEU plan, which aims to rapidly decrease the EU's dependency on Russian fossil fuels, outlining a legal amendment to raise the target reduction in final energy consumption from 9% to 13%. The European Parliament proposed to raise it further, to 14.5% by 2030. The plan recognises that energy efficiency is a key solution to the energy crisis resulting from the Russia-Ukraine conflict.

Furthermore, in March 2023 a provisional political agreement of the recast Energy Efficiency Directive ("EED") was reached, outlining the target to reduce final energy consumption by at least 11.7% by 2030. Also in March, the European Parliament adopted draft measures on the proposed revision of the Energy Performance of Buildings Directive ("EPBD"), which would mandate that new buildings occupied, operated or owned by public authorities are zero-emission from 2026, and from 2028 would make rooftop solar panels mandatory for new residential buildings.

The impact of the European Union's energy-related policies on the Company varies widely. The Investment Manager is currently assessing how EU directive revisions can help to unlock additional opportunities and revenue streams for project companies located within the EU, such as Värtan Gas.

United Kingdom

The UK Government has set an ambitious target to reduce final energy demand from buildings and industry by 15% by 2030. In order to reach the net zero target, in March 2023 the government released a package of policy plans termed "Powering Up Britain" i, which includes the Great British Insulation Scheme that aims to deliver up to £1 billion additional investment by March 2026 in energy-efficient upgrades.

Further, the government strives to continue its support towards the decarbonisation of the public sector, with £1.4 billion in grant funding for low-carbon heat and energy efficiency retrofits made available over the period 2022/23-2024/25. The UK continues the decarbonisation of the national heat network market through the Green Heat Network Fund and the Heat Network Efficiency Scheme.

Additionally, the UK government launched its Energy Efficiency Taskforce in February 2023 to accelerate improvements that will bring down energy bills for households and businesses. In March 2023, a £1.8 billion outlay was announced to increase energy efficiency and cut emissions of homes and public buildings across England.

The government's commitment to energy efficiency and the energy transition has been made more apparent during the year, and the Investment Manager expects this to result in greater investment and public-private collaboration opportunities for the Company in the UK.

Asset Management

Overview

The Investment Manager manages the portfolio to achieve operational efficiency, provide reliable and sustainable services to customers and develop value-enhancing projects.

While the Investment Manager manages operational challenges that arise from time to time, it also benefits from the upside opportunities associated with improving project company operations and working hands-on with management at the ground-level. Through this approach the Investment Manager aims to mitigate downsides, unlock new revenue streams and improve margins across the portfolio.

The portfolio is managed through a combination of:

·      the active day-to-day involvement of SDCL's 50+ employees, including an asset management team of senior and experienced professionals focused solely on driving value through financial management and operational improvements;

·      over 250 full-time employees at the project level, predominantly dedicated to "on the ground" operations of the Company's largest assets in the UK, Europe and North America; and

·      the coordinated full-time presence of on-site teams of professional advisers.

 

Unlocking Additional Value The Investment Manager seeks opportunities to improve margins by enhancing operational and financial performance, unlocking platform value and expanding the energy efficiency characteristics of an asset. Details of some key asset management initiatives undertaken during the year can be found in Portfolio Summary.
Identifying accretive investment opportunities The Investment Manager identifies, assesses and implements additional investment opportunities for existing projects to achieve higher returns and provide improved services to customers. These improvements can include unlocking additional revenue streams, identifying new customers, renegotiating existing contracts, and increasing generation capacity and efficiency.	Improving operational and financial performance of a project The Investment Manager engages with management teams to identify and solve operational inefficiencies and improve the financial performance of a project. The Investment Manager's engagement involves ensuring that the management teams have the proper governance, leadership and technical support to run the project efficiently.	Enhancing sustainability characteristics The Investment Manager consistently assesses the efficiency of a project to improve its performance and seeks to ensure the usage of the best available technology at the point of investment. The Investment Manager also manages the ESG performance of companies based on its ESG principles, more information about which can be found in ESG.	Achieving platform value Energy-as-a-service platforms allow for the Company to achieve scale through opportunity to make follow-on investments in new projects. The Investment Manager helps these platforms unlock potential value through investment and management support, such as governance and operational reforming.

 

Mitigating Downside   Operational issues are ongoing risks in infrastructure-based portfolios, especially in the volatile macroeconomic conditions defining the market backdrop during the past year. The Investment Manager's asset management team dedicates a similar level of attention and resource focused on overseeing portfolio performance, managing risks and adapting to potential obstacles facing projects as it does to unlocking additional value. Further information in relation to the risks around asset operations performing in line with expectations is outlined in Risk Management Framework. Details of operational issues impacting the operations of the portfolio and mitigation strategies can be found in Portfolio Summary.

Investment Pipeline Overview

The Investment Manager is focused on building a pipeline of investment opportunities that can complement the existing portfolio, create synergies between projects and maximise overall value for SEEIT.

While the prevailing market environment can present some interesting opportunities, the Investment Manager remains selective in making new investments, with a very small percentage making it to the stage of Investment Committee review. A significant proportion of the Investment Manager's focus is currently on evaluating initiatives within the portfolio to optimise assets and unlock additional value within individual projects.

Organic growth of the existing SEEIT portfolio currently comprises over 70% of near-term pipeline by value through follow-on opportunities, often at attractive pre-agreed rates of return.

Further, the Company is reviewing a good pipeline of new investment opportunities, taking into account the higher discount rate environment and focusing on opportunities considered to be accretive to key portfolio metrics. While the Company remains flexible in terms of which technology to employ to address client needs and secure required investment returns, the Investment Manager seeks opportunities with competitive advantages and proprietary pipeline for the Company by investing in developers, managers or operators of energy efficiency projects, some of which involve newer, commercially proven technologies. Examples include rare-earth-free motors, liquid cooling for datacentres and, more recently, thermal storage.

The Investment Manager exercises robust pricing discipline when evaluating any opportunities within its target markets and geographies, preferring to make investments where it can add value and through a private or bilateral negotiation with a vendor, rather than through a competitive auction process competing on price alone.

Over the next 12 to 24 months, the Investment Manager expects that in excess of £200 million could be invested into organic opportunities, of which approximately £50 million is contractually committed and the remaining is at the discretion of the Investment Manager.

The organic pipeline includes several investment opportunities within the existing portfolio, which are expected to contribute positively to portfolio project valuations, such as:

·      efficiency improvement projects at RED-Rochester, which contribute directly to increasing the project company's profit margin;

·      further scaling of EVN as it continues to establish itself as one of the UK's largest EV charging developers; and

·      continued rollout of solar and storage projects through Onyx, which benefits from the substantial policy tailwinds associated with the Inflation Reduction Act of 2022

The Company is also evaluating two efficient heat project opportunities in Europe, utilising biogas technology and heat pumps.

Assuming that current market conditions remain such that the Company is not able to undertake an equity capital raise, the Investment Manager is confident it can source funding for these investments through a combination of current cash resources, existing acquisition facilities, investment disposals and co-investment opportunities

Enhancing Returns Through Development and Construction-Stage Investments

While the Company invests predominantly in operational investments, SEEIT may invest in projects that are in a construction phase or development phase. The Investment Manager recognises the value potential inherent in construction and development-stage assets progressing through stages to become operational.

The Investment Manager is therefore pleased that during the year, multiple investments under construction became operational. These investments include the first six sites at EVN in the UK, energy-efficiency retrofits at Tallaght Hospital in Ireland and energy-efficient chillers at Lycra's facility in Singapore. At Red-Rochester, construction work commenced to replace chillers as well as a strategically important new CHP plant (see Portfolio Summary for details). At 31 March 2023, the Company had c.17% of Gross Asset Value^(APM) ("GAV") exposed to construction-stage projects, well below the 35% of GAV across both construction and development-stage projects allowed under its investment policy.

While construction phase investments offer opportunities for capital gains as well as income once they become operational, it is important that construction risks are managed. The Company has seen some construction delays during the year, notably in Onyx, but continues to manage those situations so that the investments become operational as close as possible to budget and expected timelines. The Huntsman Energy Centre, which had previously suffered from extensive delays, reached steam on date, the point at which it generates revenues, in June 2023.

Additionally, within the 35% of GAV that may be invested in construction and development-stage projects, the Company may invest up to 3% of GAV in companies that are developers, managers, or operators of energy efficiency projects. This offers the opportunity for capital gains but also the ability to access or secure pipeline for project investment, particularly where such companies are innovating in the context of a large total addressable market. Examples of such investments include Iceotope, which provides energy efficient cooling technology for datacentres; Turntide, which provides energy efficient and rare-earth-free motors; and, after the year end, a company which provides industrial scale thermal storage solutions. More information on these investments is in Portfolio Summary.

Strategy in Relation to Disposals

The Company may choose not to exit certain investments until they reach the end of their contracted life. At this point, it may be possible for the Company to extend the life of the project, subject to contractual negotiations.

SEEIT will contemplate disposing of assets opportunistically or via targeted sales, in the near to medium term, where these deliver value to shareholders. Timing of such disposals will be partly driven by market conditions to achieve best outcomes for shareholders or in order to secure capital for potentially accretive investments. There may be instances where a portfolio project is of greater value to an external stakeholder than to the Company - for example due to synergies within the third-party's portfolio, or the ability of a third party to recognise enterprise value or upside potential earlier in the project's lifecycle.

The Company is investing in a sector for which there is an active secondary market, and the Investment Manager has received inbound interest in respect of the disposal of certain assets within SEEIT's portfolio. These enquiries are evaluated on a case-by-case basis to determine whether pursuing an early exit would be in the best interests of shareholders.

Capital Markets Day

On 14 March 2023 the Investment Manager hosted a Capital Markets Day for the Company at the London Stock Exchange. The Board and the Investment Manager were grateful for the support for the event, with over 250 in-person and virtual attendees, made up of institutional investors and analysts.

The event consisted of a video interview with International Energy Agency (IEA) Executive Director Fatih Birol. This was followed by four panel discussions, each based around one of the Company's larger groups of investments - Onyx Renewable Partners, Oliva Spanish Cogeneration, Primary Energy and RED-Rochester. A video about the investment preceded each panel, which comprised footage of the sites in operation, with commentary from key senior managers from the relevant project companies.

A full video recording of the event, as well as the separate video interview and the investment introduction videos, can be found on the SEEIT website.

Outlook

SEEIT's portfolio has grown significantly since IPO and continues to deliver diversified income and growth opportunities from a combination of follow-on investments.

The Investment Manager is seeking opportunities to improve returns and achieve capital gains from operational projects while looking to mitigate any potential downsides. Some of these opportunities have already been included in the valuation of underlying projects. A selection of other opportunities identified and described further in Portfolio Summary could seek to offset adverse value impacts experienced in this financial year.

Energy efficiency has significant potential as a solution to economic, climate and energy security challenges. Reducing energy usage and energy waste is as valuable as ever, providing new opportunities for the Company and its portfolio.

The Investment Manager is seeking opportunities to improve returns and achieve capital gains from operational projects while looking to mitigate any potential downsides. A selection of these opportunities is described further in, Portfolio Summary.

The Investment Manager continues to assess potential investment opportunities with a focus on operational and follow-on investments, in addition to more limited investments in the development or construction phase.

Against an outlook of heightened risks to energy prices, energy security and decarbonisation, energy efficiency has a crucial role to play, with the potential to offer large-scale, proven, rapid and cost-effective solutions. The Investment Manager believes that SEEIT is well placed to continue to perform, deliver on its investment objectives and remain a leader in energy efficiency investment.

 

FINANCIAL REVIEW AND VALUATION

Financial Performance

The Company's investment strategy and the Investment Manager's focus on asset management helped manage downside risks and target value accretive opportunities during the year, notwithstanding market volatility. Efficient financial management, including the focus on treasury management described further below, helped maintain consistent dividend cover and allowed the Company to capitalise on new investment opportunities.

£85 million

Investment cash inflow from the portfolio^(APM), up 31% on a portfolio basis^(APM) (2022: £65 million), providing 1.2x dividend cash cover^(APM)

 

£(19) million

loss before tax reflects performance below management expectations, caused by the unrealised loss of £81 million from increased discount rates and specific portfolio adjustments (March 2022: £80 million profit).

 

(1.8) pence

loss per share, comprising income components of 5.5 pence, made up from inflation increases, FX gain and portfolio performance, less capital component of 7.3 pence, made up of discount rate movements.

 

£135 million

capital raised in September 2022 - accretive to NAV, adding 0.7 pence.

 

Dividends

The Company paid a total of £62 million in dividends to shareholders during the year. This included the last quarterly dividend for the year ended 31 March 2022, and the first three quarterly dividends for the year ended 31 March 2023. The Company has declared the fourth quarterly dividend for the year ended 31 March 2023, payable at the end of June 2023, thereby delivering the target of a 6.00 pence per share total dividend related to the year ended March 2023.

Based on the projected investment cashflows from the current portfolio prepared by the Investment Manager and approved by the Board, the Company announced new dividend guidance of 6.24p per share for the year to March 2024 and, as before, will target a progressive dividend growth thereafter. The Company intends to continue to pay interim dividends on a quarterly basis through four broadly equal instalments (in pence per share).

 

Analysis of Movement in NAV

During the year, the investment portfolio has seen benefits from net FX movements and high inflation levels. During the year, the performance of the operational assets in the underlying portfolio has generally been in line with expectations, apart from Oliva Spanish Generation (see 2.4 Portfolio Performance for additional information). However there has been an overall increase in discount rates caused by global increases of risk-free interest rates. This has adversely impacted the discount rates of individual projects in the Company's investment portfolio, affecting the Company's financial performance and resulting in a decrease in the Company's overall NAV.

As of 31 March 2023, the NAV per share^(APM) is 101.5p, a decrease of 6.9p from 108.4p at 31 March 2022. This decrease reflects the impact of increased discount rates (negative 7.3p) on Loss Per Share in the year offset by uplifts in macroeconomic assumptions related to inflation of 1.5p, FX movements of 0.9p, portfolio performance of 3.1p and accretive share issue of 0.7p - each of which is further described below.

Portfolio Valuation^(APM)

The Investment Manager is responsible for carrying out the fair market valuation of SEEIT's portfolio of investments (the "Portfolio Valuation"^(APM)) which is presented to the Directors for their consideration and approval. A valuation is carried out on a six-monthly basis, as at 31 March and 30 September each year. The Portfolio Valuation^(APM) is the key component in determining the Company's NAV.

The Company has a single investment in a directly and wholly owned holding company, SEEIT Holdco. It recognises this investment at fair value. To derive the fair value of SEEIT Holdco, the Company determines the fair value of investments held directly or indirectly by Holdco (the Portfolio Valuation^(APM)) and adjusted for any other assets and liabilities. The valuation methodology applied by Holdco to determine the fair value of its investments is materially unchanged from the Company's IPO and has been applied consistently in each subsequent valuation. See Note 3 for further details on the valuation methodology and approach.

The Portfolio Valuation^(APM) as at 31 March 2023 was £1,100 million, an increase of 20% compared with £913 million as at 31 March 2022. A reconciliation between the Portfolio Valuation^(APM) at 31 March 2023 and Investment at fair value shown in the financial statements is given in Note 11.

After allowing for investments of £240 million (see Portfolio Summary for more details) and cash receipts from investments of £85 million, the Rebased Portfolio Valuation^(APM) is £1,069 million. After adjusting for changes in macroeconomic assumptions, foreign exchange movements and changes in discount rates, this resulted in a portfolio return of £49 million, equating to a 4.6% return in the year. The return was affected by a number of project specific valuation movements described under Balance of Portfolio Return below.

The Portfolio Valuation^(APM) as at 31 March 2023 includes assumptions on future project level revenues that are both contracted and uncontracted (as at 31 March 2023). The definition of contracted revenues include:

·      long-term fixed contracts

·      rolling annual contracts (e.g. in Värtan Gas where the majority of customers have contracts that are rolled over automatically on an annual basis)

·      contracts due to be recontracted in future, where there is a clear history of recontracting and the customer does not have another viable or contractual source of energy (e.g. extension of existing contracts in Red-Rochester and Primary Energy)

 The uncontracted revenues typically relate to where assumptions have been made for:

·      expansion of developer platforms (e.g., future C&I solar portfolios developed by Onyx)

·      growth assumptions based on existing contracts (e.g., Red-Rochester where revenue growth is assumed from successful delivery of value accretive capital expansion and addition of new customers), and

·      contract life extensions where the customer can be considered to have a viable alternative source of energy at the end of the existing contract (e.g., UU Solar and Onyx where it is assumed that the customer will seek an extension for a few years instead of decommissioning)

·      Ancillary revenues that are considered side products of primary revenues in certain projects (e.g., olive oil sales at Oliva Spanish Cogeneration and merchant revenues from excess capacity at UU Solar).

Based on the above characteristics, as at 31 March 2023, 79% (March 2022: 76%) of the Portfolio Valuation^(APM) by value is considered to be contracted and 21% (March 2022: 24%) is considered to be uncontracted.

Furthermore, based on the assumed cash flows in the March 2023 Portfolio Valuation^(APM), approximately 73% (March 2022: 77%) of portfolio revenues (contracted and uncontracted as described above) are linked to contracts with availability-based, regulated or pre-determined revenue characteristics, with a further 19% (March 2022: 18%) of portfolio revenues having capacity-based characteristics where there is typically a right of first dispatch, whereby an offtaker agrees to pay for a volume of output to the extent that it has demand for it.

The analysis above is based on the revenue projections included in the March 2023 Portfolio Valuation^(APM) and excludes costs and terminal value assumptions.

The weighted average remaining life of investments as 31 March 2023 is 15.9 years (March 2022: 14.8 years), when calculated purely on when current contracts end. When based on the March 2023 Portfolio Valuation^(APM), which includes recontracting and contract life extensions, the weighted average remaining life is 28.0 years (March 2022: 21.7 years).

Further information on key assets and potential future valuation movements can be found in Portfolio Summary and Note 3.

Valuation Movements

A breakdown of the movement in the Portfolio Valuation^(APM) in the year is set out below.

Return from the Portfolio off the Rebased Portfolio Valuation^(APM)

Each movement between the Rebased Portfolio Valuation^(APM) of £1,069 million and the 31 March 2023 valuation of £1,100 million is considered in turn below:

Changes in Macroeconomic Assumptions of £16.9 million:

•      Inflation assumptions: consistent with March 2022, the approach in all jurisdictions is to apply a three-year near-term bridge to the relevant long-term inflation assumption. Given the rises in global inflation in the last 12 months, this has resulted in an uplift in the valuation due to high near-term inflation, compared with the assumptions applied for the March 2022 valuation or at the time of investments during the year.

•      Tax rate assumptions: there were no changes to corporation tax rate assumptions during the year.

•      Further details on the macroeconomic assumptions applied to the 31 March 2023 valuation and comparison to previous periods can be found in Note 3.

Changes in Foreign Exchange Rates of £46.6 million (before hedging):

•      The investment portfolio gained £46.6 million during the year from movements in foreign exchange rates, driven by the movement of GBP against the US dollar, Euro, Singapore dollar and Swedish krona since 31 March 2022 or since new investments were made in the year. The most significant impact was due to the GBP's weakening against the US dollar, which had a pronounced effect on portfolio valuations as SEEIT has a significant portfolio exposure to the USA.

•      However, it is important to note that this only reflects the movement in underlying investment values, and it does not take into account the offsetting effect of foreign exchange hedging that SEEIT Holdco applies outside of the Portfolio Valuation^(APM).

•      SEEIT Holdco experienced an aggregate loss of £36.3 million due to foreign exchange hedging. The overall foreign exchange movements did not have a significant impact on NAV during the year, resulting in a net gain of £10.3 million from foreign exchange movement.

Changes in Valuation Discount Rates of £(81.2) million:

•      The discount rate used for valuing each investment represents an assessment of the rate of return at which infrastructure investments with similar risk profiles would trade on the open market.

•      During the year, and in particular since early September 2022, there were significant increases in interest rates globally, including in SEEIT's key geographical areas. This has stemmed from geopolitical uncertainties and a high inflationary environment due, in part, to high energy costs. This has led to an increase in discount rates across the whole investment portfolio that in aggregate resulted in a decrease in the Portfolio Valuation^(APM) of £81.2 million

•      Since September 2022 there has been very little market activity to help set benchmarks for appropriate discount rates for the investments in the Portfolio Valuation^(APM).

•      The Investment Manager considered it necessary to apply a significant increase to discount rates, and having assessed geographical areas as a whole and each project individually, has applied discount rate increases that increased the weighted average discount rate by approximately 70bps to 7.7% on an unlevered basis (March 2022: 7.0%) and 8.5% on a levered basis (March 2022: 8.0%).

•      For the valuation as at 31 March 2023, the Directors commissioned a report from a third-party valuation expert to provide their assessment of the appropriate discount rate range for each investment (excluding small investments with an aggregate value of less than 2% of the Portfolio Valuation ^(APM)) in order to further benchmark the valuation prepared by the Investment Manager. The discount rate applied to each investment by the Investment Manager were within the ranges advised by the third-party valuation expert.

Weighted average discount rate as at March 2023 (compared to March 2022)
Levered/unlevered	UK	US	Europe/Asia	Combined
Levered	7.1% (6.7%)	8.9% (8.3%)	8.4% (7.5%)	8.5% (8.0%)
Unlevered	7.1% (6.7%)	7.9% (7.2%)	7.4% (6.5%)	7.7% (7.0%)

 

Discount rate ranges (unlevered) as at March 2023 (compared to March 2022)
UK	US	Europe/Asia	Combined
4.75% - 8.75% (4.0% - 8.0%)	6.50% - 9.00% (5.2% - 10.0%)	4.75% - 10.25% (4.6% - 10.0%)	4.75% - 10.25% (4.0% - 10.0%)

 

Balance of Portfolio Return of £48.8 million:

•      This refers to the balance of valuation movements in the year (excluding (i) to (iii) above), which provided an uplift of £48.8 million. The balance of portfolio return reflects the net present value of the cashflows unwinding over the year at the average prevailing portfolio discount rate, and various additional valuation adjustments described below. The portfolio delivered a return of c.5% in the year, lower than expected with details on key movements described below.

The Portfolio Valuation^(APM) as at 31 March 2023, and by implication the return achieved over the year, includes several key estimates and judgements of future cash flows expected from different investments. In addition, specific adjustments were required for events during the year that affected the actual outcome from certain investments.

The key estimates, judgements and adjustments described below summarise those that have had a material impact on the March 2023 Portfolio Valuation^(APM) and therefore the Company's NAV, defined for the purpose of this section as having a 1% impact or higher. The below movements are all between c. 1% and c. 3% of NAV:

•      Primary Energy

•      Estimates of medium to long-term energy demand expected at PCI in the Primary Energy portfolio has been lowered materially, resulting in an adverse impact on the valuation of c. £16m.

•      RED-Rochester

•      The projected growth of earnings is assumed to deliver a business capable of continuing to serve customers at the Eastman Business Park for a further 20 years beyond the lifetime previously assumed. As a result, estimates have been included, based on the assumed projected growth of earnings, that a gain share pay-out will be made to the external asset management team tasked with delivering the growth. The net positive impact of these is estimated at c. £30 million.

•      Assumptions for operating costs over the life of the investment have been increased, including labour costs, chemical costs and maintenance costs. This has had an adverse impact of c. £24 million.

•      Changes in the assumed future commodity pricing affecting both revenues and costs had a favourable impact of c. £17 million. In addition, due to changes in the expected energy demands of customers in the future and the increasing importance of providing electrical loads, the methodology for calculating power pricing has been updated to more closely align to current market pricing. A third-party power curve is now the basis of electricity pricing and this has had a positive impact of c. £12 million.

•      Onyx

•      Based on the number of underlying assets that reached completion during 2022 and a revised target set for asset completions in 2023 and 2024 caused by operational delays, there is a reduction in value of c. £16 million in the construction portfolio (Obsidian II) of Onyx, after taking into account positive impact from the Inflation Reduction Act.

•      An estimate has been included that assumes Onyx continues to deliver annual portfolios of C&I solar assets until the end of 2029 (previously 2026) with no terminal value thereafter for the development platform, which has positively impacted the valuation of the development platform of Onyx by c. £30 million. This is further substantiated through the acquisition after 31 March 2023 of the remaining 50% stake of the development platform as described in Note 18.

•      Oliva Spanish Cogeneration

•      Following a long delay, in late 2022 and early 2023 the Spanish government published regulatory updates to the RoRi (incentive scheme to provide a return on operations and investments) for 2021 and the first half of 2022. The updates were below expectations and caused an adverse one-off impact of c. £21 million to the actual outcome of Oliva for 2022 and the expected outcome for 2023.

•      The lack of RoRi updates and highly volatile commodity markets in 2022 resulted in a utilisation of the plants well below expectations, especially in the second half of 2022 - this had an adverse one-off impact of over £10 million to the actual outcome of Oliva for 2022.

•      Värtan Gas

•      The periodic regulatory update relevant to Värtan Gas changed both the WACC and RAB used in calculating the value of the regulated investment, causing an adverse impact on the valuation of c. £17 million. There is no impact on medium term cashflows stemming from this update as the forecast revenues at Värtan remain comfortably below the allowed revenue cap. The valuation impact is primarily driven by the impact on the assumed terminal value which is calculated as a multiple of the RAB in line with broader market practice.

•      Using third-party advice, long term assumptions on the rate of growth assumed for the use of biogas in the Stockholm transport industry have been revised downwards in the Värtan Gas investment by c. £11 million, although partially offset by assumed growth in revenues generated from restaurants of c. £2 million.

•      Other

•      The availability of group relief for UK corporation tax has increased during the year, resulting in a positive impact on the Portfolio Valuation^(APM) as a whole of c. £13 million.

•      A provision of c. £13 million has been included for the recoverability of a loan to FES Lighting while it is undergoing a comprehensive review of its sales strategy, led by the Investment Manager.

 

Additional information and sensitivities are disclosed in the critical estimates and judgements section of Note 3.

Valuation movements during the year to 31 March 2022 (£'m)
Portfolio Valuation - 31 March 2022		912.7
New investments	240.3
Cash from investments	(84.5)
		155.8
Rebased Portfolio Valuation		1,068.5	% on Rebased
Changes in macroeconomic assumptions	16.9		1.6%
Changes in foreign exchange	46.6		4.4%
Changes in discount rates	(81.2)		(7.6%)
Balance of portfolio return	48.8		4.6%
		31.1
Portfolio Valuation - 31 March 2023		1,099.6

 

Financial information

As described in detail in Note 2, the Company meets the conditions of being an Investment Entity in accordance with IFRS 10. This report is prepared on a consistent basis to previous reports whereby the IFRS 10 Investment Entity exemption is applied to the financial statements.

To provide shareholders with more transparency into the Company's capacity for investment, ability to make distributions, operating costs and gearing^(APM) levels, results have been reported in the pro forma tables below on a non-statutory "portfolio basis"^(APM), as it has been done in previous years, to include the impact if SEEIT Holdco were to be consolidated by the Company on a line-by-line basis.

The Directors consider the non-statutory portfolio basis^(APM) to be a more helpful basis for users of the accounts to understand the performance and position of the Company. This is because key balances such as cash and debt balances carried in Holdco and all expenses incurred in Holdco, including debt financing costs, are shown in full rather than being netted off.

The impact of including Holdco is shown in the Holdco reallocation column in the Income Statement and Balance Sheet, which reconciles back to the statutory financial statements ("IFRS") and constitutes a reallocation between line items rather than affecting NAV and Earnings. In the Cashflow statement the Holdco reallocation column simply represents the net difference between the portfolio basis^(APM) and IFRS for movements that may occur only in Holdco or only in the Company.

NAV per share^(APM) and Earnings per share are the same under the portfolio basis^(APM) and the IFRS basis.

Summary Financial Statements

Portfolio Basis Summary Income Statement

12 Month period to 31 March 2023				12 Month period to 31 March 2022
£'million	Portfolio Basis	Holdco reallocation	IFRS (Company)	Portfolio Basis	Holdco reallocation	IFRS (Company)
Total (loss)/income	(1.8)	(4.8)	(6.6)	92.5	(3.8)	88.8
Expenses & Finance Costs	(16.7)	4.7	(12.0)	(12.7)	(3.7)	(9.0)
Profit/(loss) before Tax	(18.5)	(0.1)	(18.6)	79.8	-	79.8
Tax	(0.1)	0.1	-	-	-	-
(Loss)/Earnings	(18.6)	-	(18.6)	79.8	-	79.8
(Loss)/Earnings per share (pence)	(1.8)	-	(1.8)	10.0	-	10.0

 

Portfolio Basis Balance Sheet

31 March 2023				31 March 2022
£'million	Portfolio Basis	Holdco reallocation	IFRS (Company)	Portfolio Basis	Holdco reallocation	IFRS (Company)
Investments at fair value	1,099.6	28.3	1,127.8	912.7	15.5	928.2
Working capital	(39.9)	37.2	(2.7)	(10.6)	9.4	(1.2)
Debt	-	-	-	-	-	-
Net cash	65.7	(65.4)	0.3	170.9	(24.9)	146.1
Net assets attributable to Ordinary Shares	1,125.4	-	1,125.4	1,073.1	-	1,073.1
NAV per share (pence)	101.5	-	101.5	108.4	-	108.4

 

·      Total income: Income at the Company level is the income it receives from Holdco which contrasts to Portfolio Basis where the income is received from the portfolio assets.

·      Expenses & finance costs: Investment transaction costs are incurred at Holdco only and therefore not included in the Company Income Statement.

·      Investment at fair value: Company valuation excludes Holdco's other net assets (see note 11 for detailed reconciliation).

·      Working Capital and cash: Holdco working capital includes a large payable to a FX hedging counterparty.

 

 Treasury Management

Cash cover^(APM) for dividends paid

The financial year saw cash inflow from investments (on a portfolio basis^(APM)) of £84.5 million, an increase of circa 30% from the previous year's £64.7 million. After allowing for fund level costs of £13.5m (March 2022: £10.8m), this enabled the Company to cover its cash dividends of £62 million by 1.2 times, maintaining the same level as the previous year. The Company's average cash cover^(APM) is around 1.3x since its IPO to date, and the Investment Manager is targeting to grow the near to medium-term levels to above the historic average.

Maintaining these levels of cash cover^(APM) has resulted in cumulative excess cash cover^(APM) of c. £29 million since IPO, demonstrating the consistent nature of the income from the underlying assets in the portfolio, as well as the ability of the portfolio to generate excess cash that can be reinvested for an accretive return. Post year end, the surplus cash has assisted the Company with its programme of share buybacks.

Liquidity and The Company's Hedging Strategy

The Investment Manager has been proactive in ensuring significant liquidity headroom to meet existing investment commitments and capitalise on emerging opportunities in both organic and inorganic pipelines. The heightened volatility in foreign exchange markets has increased the need for available liquidity to cover cash collateral requirements and mark-to-market losses associated with foreign exchange trades. In the year, due to sudden sharp movements in GBP/USD, the highest amount reached for cash collateral posted was £56 million. As at 31 March 2023, the amount outstanding for cash collateral was nil.

To further manage liquidity risk, the Investment Manager has taken measures to increase cash collateral thresholds and diversify its exposure across multiple hedge counterparties. This approach has significantly reduced Holdco's liquidity risk, ensuring that Holdco and the Company maintained ample liquidity levels throughout and beyond the reporting period.

The Company's hedging strategy is executed at the level of Holdco, so the Company itself is only indirectly exposed to foreign exchange movements. The objective of the Company's hedging strategy is to protect the value of both near-term income and capital elements of the portfolio from a material impact on NAV arising from movements in foreign exchange rates.

This is achieved on an income basis by hedging forecast investment income from non-sterling investments for up to 24 months through foreign exchange forward sales. On a capital basis, it is achieved by hedging a significant portion of the portfolio value through rolling foreign exchange forward sales. The Investment Manager also seeks to utilise corporate debt facilities in the local currency to reduce foreign exchange exposure.

As part of the Company's hedging strategy, the Investment Manager regularly reviews the non-sterling exposure in the portfolio and adjusts the hedging levels accordingly while considering the cost-benefit of the hedging activity. The hedging strategy also involves ensuring regular calculation of sufficient cash headroom, so as to meet potential liquidity requirements imposed by hedging counterparties during periods of volatility that may adversely affect the Company.

As demonstrated below, the portfolio has a substantial exposure to non-GBP assets. In the execution of hedging strategy, the Investment Manager has chosen to retain high levels of hedging during the year, typically ranging between 90-100% of the value of the underlying non-GBP investments. 

During the year marked by sharp fluctuations in GBP/USD and the USD's strengthening, the increase in portfolio value attributed to foreign exchange was mostly negated by the hedging's foreign exchange loss. Consequently, the impact on the Net Asset Value^(APM) due to currency exchange was limited to £10.3 million (0.9p/share), which equates to less than 1% of NAV.

Following an assessment of liquidity risk and medium-term projections, the Investment Manager has concluded that SEEIT Holdco should lower its current hedging level and focus on hedging 75% to 90% of its non-GBP assets going forward. This target range remains within the parameters previously agreed with the Directors through the Company's Treasury Policy, thus the overall hedging strategy and objective are unchanged from before. This move is expected to result in reduced liquidity risks and increased cash and RCF availability, enabling the Investment Manager to invest in new and existing projects accretive to the Company's total return prospects without the need for higher levels of cash/RCF buffers for hedging commitments.

Revolving Credit Facility

The Investment Manager periodically considers refinancing options aligned to the pipeline of new and existing investments. During the year SEEIT Holdco increased its RCF by £35 million to £180 million, through a partial exercising of the accordion option. At 31 March 2023 the RCF was undrawn.

Ongoing Charges

The Portfolio's ongoing charges ratio^(APM) remained in line with before at 1.02% (March 2022: 1.00%), the marginal increase stemming predominantly from the impact of increased discount rates and the associated adverse impact on NAV as described elsewhere in this section.

Ongoing charges, in accordance with AIC guidance, are defined as annualised ongoing charges (i.e. excluding acquisition costs and other non-recurring items) divided by the average published undiluted net asset value in the year). Ongoing Charges percentage has been calculated on the portfolio basis^(APM) to take into consideration the expenses of the Company and Holdco.

Portfolio Basis Cashflow Statement

31 March 2023				31 March 2022
£'million	Portfolio Basis	Holdco reallocation	IFRS (Company)	Portfolio Basis	Holdco	IFRS (Company)
Cash from investments	85.1	(0.3)	84.8	64.7	(11.7)	53.0
Operating and finance costs outflow	(13.1)	3.1	(10.0)	(11.8)	2.9	(8.9)
Net cash inflow before capital movements	72.0	2.8	74.8	52.9	(8.8)	44.1
Cost of new investments including acquisition costs	(240.2)	(52.2)	(292.4)	(304.9)	(14.9)	(319.8)
Share capital raised net of costs	132.6	-	132.6	343.9	-	343.9
Movement in borrowings	29.6	(29.6)	-	(1.7)	1.7	-
Movement in capitalised debt costs and FX hedging	(37.3)	38.5	1.2	(1.3)	1.3	-
Dividends paid	(62.0)	-	(62.0)	(44.2)	-	(44.2)
Movement in the period	(105.3)	(40.5)	(145.8)	44.7	(20.7)	24.0
Net cash at start of the period	170.9	(24.9)	146.1	126.2	(4.1)	122.1
Net cash at end of the period	65.6	(65.3)	0.3	170.9	(24.9)	146.1

 

Investment cash inflows from the portfolio^(APM) on a Portfolio Basis were £85.1 million (2021: £64.7 million), includes £84.5 million cash from portfolio investments plus other interest income.

The total cost of investments by the SEEIT group on a portfolio basis^(APM) was £240.2 million (March 2022: £304.9 million), including a further £119 million invested as follow-on in existing investments and transaction costs (transaction costs are included at Holdco and not included in the Company Income Statement). Further details can be found in Portfolio Summary.

Going Concern

The Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis of accounting in preparing the financial statements. Further details of the processes carried by the Company in determining that the going concern basis continues to be appropriate including the upcoming continuation vote, can be found in Report of the Directors and Note 2.

PORTFOLIO SUMMARY

Investment Update

During the financial year, SEEIT successfully invested c.£240 million in six new and seven follow-on investments and commitments. A further c.£30 million has been invested since 31 March 2023 into two new and four follow-on investments and commitments.

 

The Investment Manager has actively sought to make investments in a wider range of technological solutions for energy efficiency. For example, since 31 March 2022, SEEIT has made investments focused on supply and distribution and demand reduction involving:

§ geothermal power and heating;

§ energy-efficient motors, free of rare earth minerals;

§ datacentre liquid cooling; and

§ behind-the-meter solar PV, wind and hydropower.

 

 

Inorganic Investments Made During the Year
Project	Description	Investment/ commitment date	Location	Investment/ commitment amount
Baseload	Convertible debt investment into a portfolio of small-scale geothermal projects that utilise existing heat sources.	May 2022	Sweden	c.£4m[6]
Turntide	Energy-efficient variable-speed motor systems technology that reduces carbon emissions, providing energy cost savings to various industries without incorporating environmentally damaging rare earth minerals used in alternatives.	May 2022	USA	c.£8m
Iceotope	Data centre immersion cooling technology providing significant reduction in energy usage and associated CO2 emissions versus traditional air-cooling technology.	June 2022	UK	c.£3m
UU Solar	Portfolio of predominantly solar PV assets, providing renewable energy generated on site directly to the end user across North West England.	July 2022	UK	c.£100m
On.Energy	Investment in battery energy storage systems ("BESS") and microgrids solutions provider, focusing on delivering long-term, on-site "energy storage as a service" projects.	August 2022	USA	c.£4m[7]
Bloc Power	Energy efficiency solutions, including heat pumps, LED lighting, solar PV, battery storage, etc, for small and medium-sized enterprises and low-to-moderate income communities in New York State.	November 2022	USA	c.£0.2m[8]

 

Organic Investment Activity During the Year
Project	Location	Investment/commitment amount
Biotown	USA	c.£1m
Onyx	USA	c.£50m
Spark US Energy Efficiency II	USA	c.£13m
Tallaght Hospital	Ireland	c.£4m[9]
EV Network	UK	c.£23m
FES Lighting	USA	c.£6m
Lycra	Asia	c.3m
RED-Rochester	USA	c.16m

 

Investment Activity Since Year End
Project	Investment Date	Type	Location	Investment/Commitment Amount
Onyx Development Platform - remaining 50% interest	June 2023	Follow-on	USA	c.£4m[10]
CPP Biomass	June 2023	Inorganic	USA	c.£1m
Thermal energy storage company	June 2023	Inorganic	USA	c.£2m
Spark US Energy Efficiency	Various	Follow-on	USA	c.£7m
RED-Rochester	Various	Follow-on	Asia	c.£12m
Onyx	Various	Follow-on	USA	c.£1m
FES Lighting	Various	Follow-on	USA	c.£2m

Portfolio - Key Updates

Overview

SEEIT has made several larger investments since listing, which form a foundation for overall portfolio cashflows as well as providing established platforms to generate growth opportunities. Some of these investments consist of a number of distinct individual projects and therefore 21 individual projects are represented by this section.

The largest six investments (consolidated) are diversified across the UK, North America and Europe and make up c.78% of SEEIT's total portfolio by value. A detailed summary of these investments and their performance during the year is outlined below.

In comparison to previous periods, this section increases the overall disclosure of SEEIT's key underlying portfolio investments, including the provision of specific project-level KPIs. The Board and the Investment Manager will continue to engage with the Company's shareholders and evaluate the benefits of increasing disclosure further in future.

For a more comprehensive understanding of these investments, Financial Review and Valuation Movements, the principal risks in Risk Management Framework and Note 3 in the financial statements provide further details.

The revenues referred to in this section describe the revenues that are assumed in the Portfolio Valuation^(APM) and therefore includes both contracted and uncontracted revenues. This is explained further in Financial Review and Valuation Update.

This section also highlights some of the upside opportunities, a number of which would require further upfront investment, that are being developed by the Investment Manager across the larger investments but not yet included in the March 2023 Portfolio Valuation^(APM), . These opportunities alone could potentially add over £150 million to the NAV over the next 2-5 years, although there can be no guarantee that this will be realised. In addition there is a pipeline of identified upside opportunities that are yet to be reliably quantified. As a result, the Investment Manager expects the NAV accretive opportunities to continue to develop over the next few years.

1) RED-Rochester

One of the largest commercial district energy systems in North America

Investment Overview

RED-Rochester is the exclusive provider of select utility services to customers within the Eastman Business Park ("EBP"), for which it has contractual and regulated utility-status franchise rights.

 

The asset provides 16 on-site services to customers that reduce customer energy demand compared with local utility and third-party service providers. These services include electricity, steam, chilled water, industrial wastewater treatment, compressed air, nitrogen, water treatment, industrial water and high-purity water distribution.

 

RED-Rochester provides SEEIT with a platform to grow the delivery of on-site energy efficient services to the local region, including the expansion of operations beyond the EBP to greater Rochester and the Northeast of the USA.

 

Investment Highlights
Investment type	Direct equity (100%)
Acquisition date	May 2021
Asset location	Rochester, NY
No. of projects	1
Project equity value and as a percentage of SEEIT's GAV	c.$314 million (c. GBP 254 million) (c.22%)
Project level debt	c.$75 million
Capacity	117MW
Technology	16 on-site services, primarily process/heating steam, electricity, and process/conditioning cooling
Forecast project life remaining	c. 40 years
Lifecycle stage	Operational[11]
Counterparties / offtakers	Over 115, including Eastman Kodak, Li-Cycle, Amazon, among others
O&M	RED-Rochester staff
Fuel supply	Natural gas supplied from Rochester Gas & Energy Corporation

 

RED-Rochester Revenues and Cost Model

The project is underpinned by predominantly long-term contracted cashflows with positive inflation correlation. RED-Rochester has contracts with over 115 commercial and industrial customers on fixed terms under an approved tariff structure as follows:

·      Customers typically sign a 20-year contract with no break clauses. Contract extensions are assumed in the March 2023 Portfolio Valuation^(APM). Revenues are split:

o  Fixed charge: c.40% of revenues are generated from fixed fees paid, unrelated to demand or services procured.

o  Capacity based charge: c.50% of revenues are from a pre-determined tariff, based on the cost of delivery of the service and the customer's demand.

o  Overhead: c.10% of revenues are from a fixed mark-up for each customer on the total utility bill.

 

Future cashflows are also assumed from growth opportunities, including the accretive capital enhancements such as the CHP plant described below that is expected to increase revenues in the future.

Investment Risks and Mitigants

Risk type	Description	Mitigation
Operational	Construction delays of capex projects, including the CHP plant	The Investment Manager ensures that, where appropriate, project contracts include liquidated damages for delays should they overrun schedule. The schedules also assume a buffer for delays.
Credit	Default of counterparties	By providing services to over 100 customers across the park, the credit risk is diversified. The Manager works with other stakeholders to ensure the creditworthiness of new customers does not degrade the overall credit profile. In addition, the fixed charge component of the tariff is joint and several between customers, thus limiting the impact of any potential default.
Operational	Demand risk resulting in the lower-than-expected variable tariff revenues	Demand from the customers at RED-Rochester is relatively stable. The majority of the customers were deemed as "critical industry" during the Covid-19 pandemic period, with demand remaining in line with expectations. The diversification across 100 customers helps mitigate against individual customer demand volatility.

 

Value Accretion Potential

There are two potential sources of value accretion at RED-Rochester:

·      Increasing Fixed Revenues: EBP is currently underutilised and has capacity to service more customers. As new tenants join EBP, RED-Rochester can benefit from increased profits from the additional fixed fee that each new customer will pay.

 

·      Improving Efficiency: the variable charge is based on a baseline efficiency of the cost of delivering services. If RED-Rochester is able to improve the efficiency of its operations and reduce this cost, it is able to capture the financial benefit of this reduced cost.

There are several examples of upside opportunities at RED-Rochester that have not been reflected in its current valuation, but could provide additional value over the short to medium term, including:

·      Increasing Fixed Revenues:

§ Converting 5% higher new customers to the EBP above forecasted in the Portfolio Valuation^(APM).

o  Estimated potential value uplift: £10 million - £20 million

o  Time period: 2-4 years

 

·      Improving Efficiency:

§ CHP plant constructed on time and on budget (the Portfolio Valuation^(APM) at 31 March 2023 applied a probability factor and higher discount rate for the construction activity).

o  Estimated potential value uplift: £10 million - £15 million

o  Time period: 2-3 years

 

§ Investment in other energy efficiency projects that result in cost savings (the Portfolio Valuation^(APM) at 31 March 2023 applied a probability factor and higher discount rate for the construction activity).

o  Estimated potential value uplift: £5 million - £10 million

o  Time period: 1-3 years  

 

§ Cost recovery of future fixed overheads based on management's planned actions over the medium-term.

o  Estimated potential value uplift: £5 million - £10 million

o  Time period: 3-5 years   

 

Investment Updates for the year

The Investment Manager has progressed several growth initiatives that will support the operational and financial performance at RED-Rochester.

In July 2022, a three-year asset management agreement was signed with Ironclad for management oversight of the asset's administration, finance, operations and maintenance activities, as well as project management and execution of major accretive projects. As part of this agreement, the Investment Manager and Ironclad agreed on incentives aimed at growing RED-Rochester's EBITDA through marketing efforts to attract new customers and implement value-added projects.

The Investment Manager also completed negotiations to bring lithium-ion battery recycler Li-Cycle to the EBP, providing a new processing centre and warehousing multiple utility services.

Several capital projects were also approved in the year, including:

·      a c. £7 million new chiller installation, for which construction commenced in 2022 and is expected to complete in 2024.

·      a c. £69 million CHP plant (cogeneration turbine generator and heat recovery steam generator), for which construction commenced in 2023 and expected to complete in 2025.

·      a c. £13 million investment to support Li-Cycle's new processing centre and warehouse, for which construction commenced in 2022 and is expected to complete in 2024.

Finally, the Investment Manager engaged with the RED-Rochester management team to strengthen governance and employment opportunities, including:

·      The appointment of a new CEO to RED-Rochester to support business development at EBP and pursue new opportunities in district energy in the northeast USA.

·      the creation of staffing and leadership succession plans to manage eventual staff changes and employee resource efficiency.

·      the implementation of an internship programme to bring undergraduates and technical students to RED-Rochester and therefore support educational programmes, promote ESG community outreach and identify potential new hires.

·      the hiring of additional managerial and technical staffing at the EBP wastewater treatment facility in order to improve environmental compliance.

 

	Year to 31 December 2022[12]
EBITDA (US$ '000's)	14,628
MMBTUs[13] delivered to customers	7,005,222

 

EBITDA was c.11% below budget for the year to December 2022, primarily driven by some unplanned maintenance as well as higher than expected chemical costs, which could not be passed through during the period. This cost increase has been incorporated into the current valuation.

Additionally, the MMBTUs delivered were c.4% under budget, driven by lower heat demand due to a milder winter in Rochester. Slight weather adjusted fluctuations in output, both up and down, are to be expected over the long term.

 

2) Onyx Renewable Partners ("Onyx")

C&I Solar and Storage Platform in the USA

Investment Overview

Onyx Renewable Partners is a large and established C&I solar and storage platform, with over 200 commercial and industrial customers across its operational, construction and development stage assets.

SEEIT's investment is structured as follows:

1.   100% ownership of portfolios of projects that are operational (SMIII, Janus II, CTAZ, and Obsidian I, totalling 72MW) or in construction/late-stage development (Obsidian II totalling 106MW).

2.   50% ownership of the Onyx development platform with Blackstone, with SEEIT retaining the right to acquire pipeline projects at a pre-agreed price.

Onyx provides SEEIT with a well-established platform to expand its on-site solar and storage presence in North America. The investments have strong energy efficiency characteristics, increasing the supply of on-site renewable energy and helping to reduce greenhouse gas emissions from the supply, distribution and consumption of energy.

 

Investment Highlights
Investment type	Direct equity (100% of operational assets, 50% JV in development platform)
Acquisition date	February 2021
Asset location	Currently operational in over 13 states in the USA
No. of projects	6
Project equity value and as a percentage of SEEIT's GAV	c.$200 million (c. GBP 161 million) - Onyx - SM III, Janus II, and CTAZ operational portfolios (c.3%) - Onyx - Obsidian I operational portfolio and Obsidian II construction/late-stage development portfolio (c.10%) - Onyx - Development Platform (c.2%)
Project level debt	c.$81 million
Capacity	72 MW operational
Technology	Solar and storage
Forecast project life remaining	c. 34 years
Lifecycle stage	Development, construction, operational
Counterparties / offtakers	Over 80 across operational and construction sites
O&M	Various
Fuel supply	N/A

 

Onyx Portfolio Revenues and Cost Model

The 100% owned portfolio consists of operational, construction and late-stage development projects and makes up c.88% of the investment's value. The projects in the portfolio have the following revenue structure once they are operational:

·      Power Purchase Agreements ("PPAs"): c.95% of asset revenues are generated from the end users. PPAs have fixed indexation and are typically 20 years (weighted average of c.18 years).

·      SRECs: c.5% of asset revenues are generated from SRECs.

The valuation assumes that the current construction and development stage projects within this portfolio will become operational within a defined timeframe.

 

Onyx Developer Revenues and Cost Model

The Onyx development platform makes up c.12% of the total Onyx value and has the following revenue structure:

·      Asset Management fees: c.52%, generated from AM fees charged by Onyx for managing operational portfolios.

·      EPC Development margin: c.33%, achieved on commercial operation date for delivery of certain assets.

·      Asset sales: c.15%, based on the net proceeds from the future sale of assets developed in the pipeline after the 130MW of 100% SEEIT-owned projects are constructed.

Investment Risks and Mitigants

Risk type	Description	Mitigation
Operational	Delay in the deployment of the short-term pipeline impacts the receipt of cashflows for the 100% owned assets as the valuation assumes them reaching commercial operations date ("COD") within a defined time period. Conversion of development pipeline to operational projects is less than projected.	The Investment Manager has been focused on accelerating the conversion of Onyx's pipeline by streamlining the development process and hiring key individuals. In addition, the pipeline has increased substantially so that, should some projects experience significant delays, other projects can make up the MW target.
Operational	Underperformance of operational projects	Onyx minimises the potential of underperformance by building projects using tier 1 equipment with equipment warranties and using local subcontractors, with oversight, for O&M.
Operational	Supply chain issues/cost increases	As projects are being developed, PPA pricing takes into account construction and operational costs identified at the time of signing. Additionally, recontracting opportunities exist to further enhance revenues to protect margins, if required.

 

Value Accretion Potential

There are two potential sources of activity for value accretion:

·      Increasing the pipeline of solar and storage projects in the Onyx development platform. This creates value uplift as follows:

o  The Onyx development platform valuation assumes a forecast level of MW under management over a period, with value created through cashflows from AM, EPC and Asset Sales. Increasing the MW in the pipeline increases the value of the platform.

·      Improving the economics of new individual solar projects will create value for SEEIT given it has an option to acquire the projects at pre-agreed rates of return.

There are several examples of upside opportunities at Onyx that have not been reflected in SEEIT's valuation, but could provide additional value over the short to medium term, including:

§ A potential 10% increase in expected annual MW deployment in 2024 and 2025 would accelerate the receipt of cashflows for the 100% owned portfolio.

o  Estimated potential value uplift: £5 million - £10 million

o  Time period: 3 years

 

§ In addition, the value of the Onyx development platform assumed a level of MW of projects developed per year and any increase in MW would increase the value of the platform.

o  Estimated potential value uplift: £5 million - £10 million

o  Time period: 3+ years

 

§ Improved economics with the Inflation Reduction Act: this benefits the Onyx development platform as it improves the economics of any assets sales.

o  Estimated potential value uplift: £2 million - £5 million

o  Time period: 3-5 years

 

Investment Updates for the year

The Investment Manager has worked closely with the Onyx team to ensure that the investment has the right leadership and support to develop and convert its project opportunity pipeline. Specific actions included:

·      The integration of a new CEO, who joined in January 2022 to oversee operations, asset management and business development.

·      The expansion of the management team to enhance governance and leadership at Onyx, through the hiring of a Chief Commercial Officer and Executive Vice President, Operations.

·      The reorganisation and prioritisation of business initiatives to drive improvements in portfolio operational performance, improve timely completion of development projects, and expand services and product offerings.

Additionally, the new management team is putting a focus on the business development strategy to expand beyond commercial and industrial solar and storage development. The Investment Manager continues to pursue new opportunities for behind-the-meter solar and storage development from Onyx's relationship network, as well as through the Company's portfolio through ongoing discussions at Primary Energy, RED-Rochester and FES Lighting.

The Company was also pleased, after year end, to acquire the remaining 50% interest in the Onyx Development Platform from Blackstone giving it 100% ownership of the entire Onyx Investment.

 

	Y/E 31 December 2022[14]
New projects at COD	14MW
MWh produced (operational projects only)	64,942
Performance ratio[15]	95%

 

Annual delivery of projects to COD increased c.75% in the year to December 2022. However, this was under budget by c.74% due to continued supply chain issues relating to certain major components, partly resulting from lingering effects of Covid-19. Furthermore, permitting and inspection delays for construction activities have slowed the ability for projects to reach COD. In the short term, this has been mainly a timing issue rather than losing projects.

As a result of positive changes in the business over the past year, management has brought a number of projects back on track and in the first quarter of 2023 Onyx achieved a new record for project PPAs signed since SEEIT's investment of 28MW.

Certain one-off maintenance issues with the operational projects resulted in c.5% lower production and performance than budgeted for the period. These issues are in the process of being resolved by the Onyx management team and are not expected to materially affect production going forward.

 

3) Primary Energy

Portfolio of on-site waste recycling cogeneration units, servicing the largest steel blast furnace in the USA

Investment Overview

Primary Energy is a 298MW portfolio comprising three energy recycling projects, one natural gas-fired CHP project and a 50% interest in an industrial process efficiency project.

These projects are fully integrated into the operations of two steel mills in the USA, one owned by Cleveland-Cliffs ("CC") and the other by Midwest Steel, a subsidiary of United States Steel Corporation ("USS"). The projects provide services critical to the operations of the steel mills, including fuel handling and emissions control equipment. Primary Energy has overall responsibility for the O&M of the projects but uses line staff seconded from CC and USS under contracts for site operations.

Primary Energy generates energy for the blast furnaces at the steel mills through the recycling of waste gases, playing a crucial role in reducing harmful emissions such as CO₂ and SO₂, and in certain cases, serving as the sole source for emissions control equipment and fuel handling. Primary Energy also improves energy efficiency by bringing energy generation closer to the point of use and reducing heat wasted in the steel making process.

The projects qualify for RECs that, due to their efficiency and environmental impact, are equivalent to those generated by approximately 536MW of solar or 374MW of wind projects.

Investment Highlights
Investment type	Direct Equity (100% in four projects and 50% in one project)
Acquisition date	December 2019 (50%), December 2020 (15%), September 2021 (35%)
Asset location	Indiana, USA
No. of projects	5
Project equity value and as a percentage of SEEIT's GAV	c.$241 million (c. GBP 195 million) Consisting of: - Primary - Cokenergy (c.9%) - Primary - North Lake (c.4%) - Primary - Portside (c.2%) - Primary - Ironside (<1%) - Primary - PCI Associates (c.2%)
Project level debt	c.$180 million
Capacity	298MW
Technology	On-site cogeneration, waste heat recovery process efficiency
Forecast project life remaining	c. 32 years
Lifecycle stage	Operational
Counterparties / offtakers	Cleveland-Cliffs, US Steel ("USS")
O&M	Primary Energy, Cleveland-Cliffs, USA Steel
Fuel Supply	Waste gases from CC; Natural gas supplied via CC

 

Primary Energy Revenues and Cost Model

Approximately 83% of Primary Energy's revenues are derived from energy services to CC's Blast Furnace ("BF") #7 at Indiana Harbor Works, which is considered to be the largest and most competitive furnace facility of its kind in North America. The remaining revenues are derived from the Portside Project which services USS BF #14. Primary Energy's revenues are split in the following way between the five different projects:

·      Cokenergy (c.57% of revenues): the project receives waste gas and converts to power and steam to sell to CC's BF #7 through a long-term PPA that is index linked. The revenues are protected from demand fluctuations through a true-up mechanism.

·      North Lake (c.19% of revenues): the project receives waste gas steam and converts into power and steam and sells back to BF #7 through a long term PPA, which is index linked. The revenues are protected from demand fluctuations through a true-up mechanism.

·      PCI (c.7% of revenues): the project is 50% owned with Cleveland Cliffs, the asset pulverises coal for steel production. Revenues are demand based.

·      Portside (c.17% of revenues): the project's revenues generated through the sale of heat, power and softened water through a long-term PPA. Revenues are capacity based.

·      Renewable Energy Certificates ("RECs") (c.4% of revenues): the RECs are generated by Cokenergy and North Lake and are sold in the open market.

 

Investment Risks and Mitigants

Risk type	Description	Mitigation
Operational	Recontracting of existing PPAs is assumed in the forecasts and risk of recontracting terms being below forecasts	Primary Energy assets play a critical role in the operations of two of the most profitable and critical blast furnaces in North America by providing significant cost savings and emissions reductions. The Investment Manager believes that alternative energy sources would not be able to compete on the same terms and associated benefits.
Credit	Offtaker is currently sub-investment grade	Further to the sale by Arcelor Mittal N.A. to CC in 2021, the largest offtaker within the Primary Energy portfolio is sub-investment grade. The blast furnaces associated with the Primary Energy assets are some of the largest in the USA and are highly profitable. Given their importance to the North America steel market, the likelihood of not finding a buyer, in the event of a credit default by CC, is considered low.
Climate	Development of new technologies may displace or make obsolete existing pulverised coal injection ("PCI") technology, leading to reduction in revenues	The Investment Manager is working with CC to assess options for employing best available technologies and will deploy, and/or replace, them into existing assets if necessary.

 

 Value Accretion Potential

Examples of upside opportunities at Primary Energy that have not been reflected in SEEIT's valuation, but could provide additional value over the short to medium term, include:

§ Additional revenue streams and contracts from existing assets e.g. capacity contracts.

o  Estimated potential value uplift: £5 million - £10 million

o  Time period: 2-5 years

 

§ Additional energy efficiency capex to improve operations that also generate attractive returns.

o  Estimated potential value uplift: £2 million - £5 million

o  Time period: 2-3 years

 

§ BF #4 restarted by Cleveland-Cliffs resulting in Ironside returning to operations but at reduced output

o  Estimated potential value uplift: £20 million - £40 million

o  Time period: Uncertain

 

Investment Updates in the Year

The focus at Primary Energy has been on maximising operational performance at the Primary Energy sites. In March 2022, Primary Energy customer CC announced the idling of its BF #4 steel manufacturing facility, resulting in operational idling of Primary Energy's Ironside project. This was provided for as at March 2022. The Investment Manager has supported Primary Energy leadership in their development of an interim operating agreement proposal, signed in Q1 2023, for the continuation of select operations at Ironside that save CC costs. This extended the existing contract from a day-to-day basis, creating the potential for incremental revenues in the future.

The Investment Manager is collaborating with Primary Energy and CC on operations at PCI, which provides pulverised elemental coal, essential for steelmaking in CC's largest North American blast furnace. The Investment Manager has identified options to extend the asset life as well as end-of-life technology alternatives.

Additionally, the Investment Manager is supporting the negotiations between Primary Energy and CC in renewing the existing ten-year operations agreement and therefore continue supplying CC with essential energy and environmental services.

The Investment Manager also initiated reviews with brokers and underwriters to take credit for existing Primary Energy initiatives and outage planning to lower the overall cost of insurance, resulting in premium rate decreases in 2022.

	Y/E 31 December 2022[16]
EBITDA (US$ '000's)	36,450
Average Net Production (MWs)	163.4

 

The 2022 EBITDA was c.16% below budget, primarily due to idling of BF #4 and resultant operational idling of the Ironside project facility. The valuation of Ironside assumes that BF #4 will remain idled indefinitely and does not consider the possibility of it being re-started.

Additionally, operations and maintenance costs at Cokenergy and Portside projects came in higher than budgeted during the year, which has also been reflected in future cashflows, adversely affecting the valuation of these projects. The Investment Manager is working with stakeholders through ongoing contractual negotiations with the objective of recovering these costs in future periods.

Unplanned outages at CC facilities, Primary Energy's source of waste heat, affected production at North Lake and Cokenergy which contributed to Average Net Production being c.8% below budget for the year to December 2022. Some of the revenues related to this lost production will be recovered via a contractual true-up in the next calendar year.

4) Oliva Spanish Cogeneration ("Oliva")

Portfolio of on-site waste recycling, on-site generation and process efficiency supporting the olive oil industry in Spain

Investment Overview

Oliva Spanish Cogeneration, located in southern Spain, comprises nine operating projects, of which five are efficient, natural gas cogeneration (CHP) plants with a combined capacity of 100MW, two are olive waste biomass plants with a combined capacity of 25MW, and two are olive pomace processing plants.

Oliva Spanish Cogeneration brings geographical diversification to SEEIT, through a series of efficient cogeneration plants that deliver on-site energy generation.

The investment has good yield metrics and inflation correlation, as well as robust energy efficiency credentials as the assets bring heat generation closer to the point of use. As a result, they generate process efficiencies compared with alternative heat sources. In addition, the assets process waste pomace to produce Orujo oil and electricity, an efficient energy solution that reduces greenhouse gas emissions.

Investment Highlights
Investment type	Direct equity (100% owned, apart from Celvi which is 90% owned with 10% owned by the offtaker)
Acquisition date	November 2019
Asset location	Andalucía, Spain
No. of projects	9
Project equity value and as a percentage of SEEIT's GAV	c. EUR 129 million (c. GBP 114 million) Consisting of: - Oliva - Celinares (c.2% of GAV) - Oliva - Colinares (c.1%) - Oliva - Cepuente (c.2%) - Oliva - Cepalo (c.1%) - Oliva - Sedebisa (c.2%) - Oliva - Bipuge (c.1%) - Oliva - La Roda (c.1%) - Oliva - Celvi (c.1%) - Oliva - Biolinares (c.1%)
Project level debt	Nil
Capacity	125MW
Technology	On-site cogeneration, biomass, oil extraction
Forecast project life remaining	Various, up to c.18 years
Lifecycle stage	Operational
Counterparties / offtakers	Olive co-operatives, San Miguel Arcángel, Acesur, Spanish government
O&M	Sacyr
Fuel supply	Natural gas, biomass, waste olive cake

 

Oliva Revenues and Cost Model

Oliva's revenues are split in the following way:

·      RoRi: c.44% (on average) of revenues. The RoRi is a regulatory payment from the government paid to CHP and biomass assets and adjusted to account for changes in revenues received by the assets (namely sale of electricity) and operating costs (namely natural gas and EUA emission certificates for the cogeneration). This results in stabilised cashflows and EBITDA over the long term. The assets receive the RoRi for the remainder of their asset life.

·      Electricity sales: c.42% (on average) of revenue comes from electricity sales produced by the biomass and CHP plants, which is predominantly sold to the grid, as the heat is used on site. While the revenues are linked to market pricing, this is effectively hedged through the RoRi.

·      Oil Sales: c.14% (on average) of revenues come from the product of the pomace processing, namely the production of Orujo oil, which Oliva sells through short-term contracts in the market. The price of the oil links to the cost of the biomass, providing some hedging against this fuel supply cost.

Investment Risks and Mitigants

Risk type	Description	Mitigation
Regulatory	Increase of EU ETS costs	The cost of EU ETS certificates has been rising sharply, but the costs are reimbursed over the medium term through the RoRi mechanism.
Regulatory	Update of RoRi mechanism: timing delays by the Spanish government have created a short-term cash impact on the business as well as general uncertainty in the market.	The Investment Manager, alongside Oliva's management team, have made efforts to lobby the government (directly and through trade bodies) to try to accelerate decision-making. In addition, the assets have been optimised to sequence operational availability during peak periods of profitability, resulting in periods where the assets are not operating.
Climate	Extreme weather conditions (particularly drought) are impacting the olive harvest in Andalucía. This would not only impact the biomass assets within Oliva but also the operations of the offtakers	The Investment Manager monitors the impacts of extreme weather events such as drought on olive production, and works with Oliva's olive feedstock providers to manage and mitigate any potential physical climate-related risks and pursue various mitigation tactics. These include diversifying feedstock suppliers, using alternative waste feedstock, forward purchasing of feedstock, and collaborating with local government and olive producers in the region to minimise water usage.

Value Accretion Potential

The Investment Manager has been investigating several upside opportunities at Oliva that have not been reflected in SEEIT's valuation, but could provide additional value over the short, medium and long term, including:

·      Optimising use of owned land to generate additional revenues e.g. for solar production.

o  Estimated potential value uplift: £1 million - £3 million

o  Time period: 3-4 years

 

·      Extension/Improvement of an existing contract.

o  Estimated potential value uplift: £5 million - £10 million

o  Time period: 0-1 year

Investment Updates in the Year

 

	Y/E 31 December 2022[17]
Adjusted EBITDA (€'000's)	(8,010)
MWh produced[18]	827,966

 

Global energy markets were dominated in 2022 by unpredictability, which significantly impacted the Spanish energy regime. As a result of Russia's invasion of Ukraine, European gas and electricity markets were highly volatile and operated at elevated price levels throughout 2022.

Normal market dynamics are managed in the Oliva projects through adjustment of the RoRi payment over the medium to long-term. The short-term impact of higher gas costs is normally managed through the execution of the established Oliva hedging strategy. However, price volatility was so extreme in 2022 that hedging alone was insufficient to control rising input costs. In its efforts to control escalating consumer electricity prices, the Spanish government introduced energy price controls that capped electricity prices (a revenue to Oliva) but did not cap gas prices (an expense to Oliva), resulting in an abnormal and material disconnect between the two. In turn, this severely impacted the ability to hedge and, combined with Government induced delay and uncertainty around the RoRi updating, resulted in cashflows at five of the nine Oliva projects being negatively impacted.

In order to prioritise cashflow management and minimise losses whilst waiting for the RoRi updates, the Investment Manager paused operations during certain periods where losses were highest. As a result, energy generation (Mwh produced) and EBITDA were well below budget for 2022 of c. €29m and c.1.2m MWh, respectively.

The Investment Manager led lobbying efforts to the Spanish government to issue RoRi updates and favourable energy market controls and policies.

A positive update for the RoRi was announced at the end of 2022, allowing operations to return in line with expectations in 2023.

In addition to the above, the Investment Manager has proactively collaborated with the management team at Oliva to ensure full compliance with wastewater treatment requirements and lower incident rates for equipment incidents and employee injuries.

5) UU Solar

Portfolio of 70 operational on-site renewable projects across the UK

Investment Overview

UU Solar's portfolio provides renewable energy generated on-site directly to the end user, United Utilities Water Limited ("UUW"). UUW is the regulated water and wastewater business of United Utilities Group PLC, the largest listed water and wastewater company in the UK.

 

The portfolio is 90% solar PV, 9% wind and 1% hydro in terms of total generation. The assets are all connected to UUW on-site water and wastewater utility infrastructure via private wire, and provide green electricity under long-term, fixed-price PPAs with UUW. UU Solar provides SEEIT with a yielding, fully operational project with an investment grade counterparty, underpinned by predominantly long-term contracted cashflows.

 

The project increases the supply of renewable energy generated on site and helps to reduce greenhouse gas emissions arising from the supply, distribution and consumption of energy. In particular, these assets supply clean energy to critical water infrastructure sites.

 

Investment Highlights
Investment type	Direct equity (100%)
Acquisition date	September 2022
Asset location	North West England, UK
No. of projects	1 (across several locations)
Project equity value and as a percentage of SEEIT's GAV	c. GBP 96 million (c.9%)
Project level debt	Nil
Capacity	69MWdc
Technology	Predominantly solar, with some wind and hydropower - all onsite
Forecast project life remaining	c. 29 years
Lifecycle stage	Operational
Counterparties / offtakers	United Utilities
O&M	PSH
Fuel supply	Not applicable - solar, wind and hydro energy

 

Investment Risks and Mitigants

Risk type	Description	Mitigation
Operational	Underperformance of assets resulting in lower generation and therefore, revenues.	Projects are built using tier 1 equipment; some applicable warranties remain. O&M is carried out by an experienced contractor, PSH, with oversight by an asset manager, Green Nation.

 

UU Solar Revenues and Cost Model

The majority of UU Solar's project revenues are generated from long-term contracts, and can be broken down into:

·      PPAs: 77% of revenues are through PPAs with UU for a fixed price on a take-or-pay basis, with a fixed escalation of 2%. Weighted average life of the PPAs is 25 years.

·      Feed-in tariff with RPI-linked payment: c.14% of revenues are on an NPV basis. Weighted average life is 17.5 years.

·      Merchant revenues: 9% for electricity not consumed on site.

 

Value Accretion Potential

An example of an upside opportunity at UU Solar that has not been reflected in SEEIT's valuation, but could provide additional value over the short to medium term is:

·      Expanding the use of existing sites for additional revenues e.g. batteries.

o  Estimated potential value uplift: £2 million - £5 million

o  Time period: 1-3 years

 

Investment Updates in the year

Following a competitive tender process the Investment Manager appointed a third-party asset manager to manage and optimise performance of the portfolio. The Investment Manager has also negotiated with the existing third-party operations and maintenance contractor to revise and execute a four-year contract with enhanced availability and performance guarantees.

The Investment Manager anticipates improved performance after negotiation of a long-term O&M agreement that includes performance guarantees, implementation of a more rigorous preventive maintenance programme and heightened focus on performance metrics to identify and eliminate operational deficiencies.

Given SEEIT's ownership of UU Solar commenced only in the last half of FY 2023, there are no Project KPIs to report in this period but they will be reported in FY 2024.

6) Värtan Gas

Green gas distribution and supply for the city of Stockholm

Investment Overview

Värtan Gas owns and operates the regulated gas grid in Stockholm, Sweden, c.78% of the gas is locally produced renewable biogas, sourced primarily from the city's wastewater facilities. The investment was fully operational from the point of acquisition, with strong long-term yield metrics and inflation correlation.

 

Värtan Gas provides essential infrastructure services, reducing pollution and greenhouse gas emissions by reusing waste gases both at the point of production, (for example, at municipal wastewater treatment plants) and, at the point of use, through the displacement of natural gas in buildings and diesel in transport. These characteristics are aligned to Swedish national and EU regional strategies to attain carbon neutrality by 2040.

This investment brings geographical diversification to SEEIT, together with a substantial customer base and opportunity to unlock further growth in volumes - including through the transport segment.

Investment Highlights
Investment type	Direct equity
Acquisition date	October 2020
Asset location	Stockholm, Sweden
No. of projects	1
Project equity value and as a percentage of SEEIT's GAV	c.SEK 831 million (c. GBP 65 million) (c.6%)
Project level debt	c.SEK782 million
Capacity	Distributing approximately 250GWh/year of gas
Technology	Green gas distribution
Forecast project life remaining	c. 22 years and terminal value
Lifecycle stage	Operational
Counterparties / offtakers	Various, including c.50,000 residential customers and c.800 commercial and industrial customers
O&M	Värtan Gas
Fuel supply	Gasum, Scandinavian Biogas, Others

 

Värtan Gas Revenues and Cost Model

The investment's revenues consist of:

·      Fixed Tariff (c.51% of revenues): annual fixed fee to the regulated grid from end users, which is not related to consumption. Contracts are typically rolling yearly contracts with residential customers (c.50,000).

·      Variable fee (c.49% of revenues): tariff paid for the supply of gas. Tariffs are reviewed annually (or more frequently if required) and are based on gas costs and a margin. This also includes transport and restaurants as customers.

 

Investment Risks and Mitigants

Risk type	Description	Mitigation
Operational	Churn rate (reduction) of customers higher than expected resulting in lower customers and revenues	The Investment Manager is engaging with the Värtan Gas management team to deliver more targeted marketing to gain new customers and retain existing ones. Electrification typically requires building refits.
Operational	Transport and restaurant revenues lower than targeted resulting in lower revenues	Electrification of Stockholm buses has occurred faster than expected and therefore the Värtan Gas management team is focusing on expanding into new transport segments such as ferries/marine transport.
Regulatory	Periodic regulatory updates causing revenues to be less than expected	Regulatory updates may be appealed, such as the current appeal for the most recent update. Business plans may be adjusted for future years where it impacts revenues.
Commodity	Volatility in biogas costs resulting in higher gas procurement costs	The Investment Manager has implemented a hedging strategy to ensure majority of short-term volatility of biogas costs can be mitigated. In addition, the Investment Manager and local management team implement price changes for the end customers to reflect actual gas costs.

 

Value Accretion Potential

There are several examples of upside opportunities at Värtan Gas that have not been reflected in SEEIT's valuation, but could provide additional value over the short to medium term, including:

 

·      Improved customer retentions (5% above forecast for 3 years) as a result of initiatives implemented by management.

o  Estimated potential value uplift: £3 million - £5 million

o  Time period: 2-3 years

 

·      Development of new business/customer offerings in order to grow consumption volume and new lines of business, e.g. green energy as a service.

o  Estimated potential value uplift: £10 million - £15 million

o  Time period: 3-5 years

 

·      Successful appeal of latest regulatory period updates.

o  Estimated potential value uplift: £5 million - £10 million

o  Time period: 1-2 years

 

Investment Updates in the Year

Customer retention remains a priority, with a new retention strategy developed and implemented in 2023. Reduced future transport loads are projected and an assumption around additional costs for relining sections of the distribution piping network in future periods have impacted the valuation as at 31 March 2023, although this has been partly offset by higher restaurant volumes.

A key focus for Värtan Gas is to increase the share of biogas as a proportion of total gas sold from the current average of 78% to 100% in the medium to long term.During the second half of the year, the Investment Manager completed an organisational restructuring to position Värtan Gas for future growth, with the appointment of a new CEO who started in January 2023. The Investment Manager consolidated operations and management of business segments Gasnãtet and Stockholm Gas to improve efficiency and revised the board structure to eliminate non-executive board membership and provide unified oversight of the restructured business.

Towards the end of 2022, the Swedish regulator, the Energy markets Inspectorates ("Ei") updated their assumptions on calculating the revenue cap for the period 2023-2026. The regulatory cost of capital, the WACC, has come down significantly, from 8.65% to 6.87%. In addition, there has been a change to the calculation of the Regulated Asset Base ("RAB"), which has resulted in a devaluation of the RAB (and therefore, the allowed revenue). The reduction in WACC and RAB does not impact the short-medium term revenues as these revenues are still below the regulatory cap. The impact is seen in future years for WACC and the change in RAB primarily impacts the terminal value assumed for Värtan as it has been calculated as a multiple of RAB.

Ei's decision is being appealed by Värtan and other gas network operators in the market and we expect a decision in Q3/Q4 2023. Given the nature of the changes and the precedents in other countries, we anticipate a positive outcome. We have however taken a cautious approach to the valuation in this period and not assumed the appeal will be successful.

 

	Y/E 31 December 2022[19]
EBITDA (SEK'm)	40.2
% of Green Gas	78%

 

The 2022 EBITDA was c.6% below budget as a result of additional gas costs due to the timing of implementing tariff price increases in reaction to increasing gas costs, mitigated by putting gas cost hedging in place.

The Investment Manager has worked closely with the Värtan Gas management team to secure stable gas supplies through the reporting period's energy market volatility. The Company increased its hedging through the purchasing of biogas and natural gas, and by reviewing retail pricing to bring customers cost certainty for Värtan Gas products.

Additional Portfolio Project Updates

EVN

SEEIT's dedicated Electric Vehicle ("EV") charging infrastructure platform has progressed well through the year. The first six sites (totalling 26 ultra-speed chargers) are operational and have been handed over to the Charge Point Operator, with another 15 in construction as at 31 March 2023. This includes a project in the West Midlands, where EVN has signed a 30-year exclusive contract with NEC Group to develop and build the EV charging infrastructure at the NEC campus. Once completed, the NEC campus will be a first-of-its-kind charging hub for EVs at this scale, with over 180 charging points, becoming the largest fast charging hub in the UK and one of the largest in Europe.

The assets owned by SEEIT are acquired at attractive pre-agreed returns and there is an opportunity for SEEIT to benefit from yield compression once the assets are fully operational. This upside has not been considered in the current valuation but is currently estimated at £10 million to £15 million.

FES

Due to the lingering effects of post-Covid-19 economics within FES's target market, as well as FES business development staffing turnover, revenue and EBITDA dropped well below projected levels during the second half of 2022. The Investment Manager is engaging with the business to manage cash constraints and the unanticipated difficulties with project deployment and employee hiring. In addition, rising interest rates and the consequent cost of capital led to additional follow-on investment in FES and a debt restructuring, which is ongoing.

The issues above have impacted FES's ability to be profitable in the short term and the Investment Manager is carrying out a review of FES' business development strategy, shifting focus to target larger commercial businesses, channel partner business development and MUSH (municipal, university, schools, and hospitals) entities, all of which have longer sales cycles but potentially higher revenue profitability.

The valuation has taken a provision against FES of c. £13 million as a result of the issues experienced during the period. There may be an upside opportunity to recover the provision if there is a successful implementation of actions coming out of the review.

Tallaght Hospital

Construction of the energy efficiency retrofit at Tallaght Hospital in Dublin, Ireland was completed on budget and on schedule, with operational handover achieved in early January 2023.

Lycra

Construction of the energy efficient chiller system at Lycra's Singapore facility was completed one month ahead of contracted schedule and on budget, with full operation commencing on 1 February 2023.

Huntsman Energy Centre

The Huntsman project progressed through the year and started the commissioning process. However, the failure of a steam system compressor resulted in an approximately six-month delay at the beginning of the calendar year, as detailed testing and a root cause analysis were completed before manufacturing replacement components. The rectification programme for this setback has progressed well, with the plant becoming operational in June 2023.

Moy Park Biomass

The underlying performance of the site's biomass boilers has been strong throughout the year. The minority shareholder, which is also the feedstock provider, has submitted two force majeure claims towards the end of the financial year, both in relation to the provision of their obligations under the feedstock contract. The Investment Manager is in ongoing discussions to resolve this matter and ensure service of supply to the end customer is maintained.

GET Solutions

A period of record high fuel costs created problems for the contractor associated with SEEIT's GET Solutions project, in covering contract gas procurement costs. This has resulted in SEEIT covering these costs, which has negatively impacted the asset's financial performance. The Manager is seeking to recover these costs from the contractor, while also exploring opportunities to hedge the gas procurement position to preserve performance on top of the existing contractual protections.

Portfolio Diversification

Overview

During the year, the Company achieved further scale and diversification for SEEIT by geography, technology, industry and counterparty.

Geographically, SEEIT added to its US portfolio and gained exposure to a new country, Japan, through its investment in Baseload Capital's debt facility. SEEIT also expanded its portfolio in the UK through the acquisition of UU Solar, the 69MW portfolio of on-site renewable generation projects.

By technology, SEEIT added exposure to new markets by funding geothermal district energy, liquid cooling for data centres and energy-efficient motors free of rare-earth minerals. COMPANY KEY PERFORMANCE INDICATORS

In the section below, the Company sets out its financial and operational key performance indicators (KPIs) used to track the performance of the Company over time against its objectives. . The Board believes that the KPIs detailed below provide shareholders with sufficient information to assess how effectively the Company is meeting its objectives.

Financial KPIs

KPI	Definition	31 March 2023	31 March 2022	Commentary
Net Asset Value ("NAV") per share (pence)	NAV divided by number of shares outstanding as at 31 March	101.5p	108.4p	NAV has decreased compared with the prior year due to global increases in risk-free rates pushing discount rates up materially from March 2022 -see Financial Review and Valuation Update.
Share price (pence)	Closing share price as at 31 March	84.0p	117.5p	The share price has decreased predominantly due to market volatility. Since 31 March 2023, the Company launched a buyback programme (see Note 12)
Dividends per share (pence)	Aggregate dividends declared per share in respect of the financial year	6.0p	5.62p	The dividend increased year on year due to predictability of near-term cash generation from portfolio, plus new investments made previously. The Company met its stated dividend targets for the years ended 31 March 2022 and 31 March 2023.
Dividend cash cover (x)	Operational cashflow divided by dividends paid to shareholders during the year	1.2x	1.2x	The target was for net operational cash inflow to fully cover dividends paid. The Company met its target for the years ended 31 March 2022 and 31 March 2023.
Total return on NAV basis in the year (%)	NAV growth and dividends paid per share in the year	(0.9)%	11.2%	The payment of interim dividends contributed to NAV return in the year, although offset by significantly higher discount rates, resulting in a material decrease in return compared to prior year.
Ongoing charges ratio (%)	Annualised ongoing charges (i.e. excluding investment costs and other irregular costs) divided by the average published undiluted NAV in the period, calculated in accordance with AIC guidelines	1.02%	1.00%	Remained consistent although marginal increase year on year caused by increased discount rates affecting the March 2023 NAV. See Financial Review and Valuation Update.

 

Operational KPIs

KPI	Definition	31 March 2023	31 March 2022	Commentary
Weighted average contracted investment life (years)	Weighted average number of years of contracted revenue remaining in investment contracts (excludes all recontracting assumptions)	15.9	14.8	In line with expectations - one material contract requires recontracting in the year ahead but offset by new investments made during the year.
Largest five investments as a % of GAV (%)	Total value of five largest individual investments divided by the sum of all investments held in the portfolio plus cash, calculated at year end	54%	49%	Target is to maintain good portfolio diversification, achieved in both financial years.

 

Directors' Responsibility Statement

 

The 2023 Annual Report which will be published in July 2023 contains a responsibility statement in compliance with DTR 4.1.12. This states that on 28 June 2022, the date of the approval of the Annual Report, the Directors confirm that to the best of their knowledge:

·      the Company financial statements, which have been prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

·      the Strategic Report: Portfolio Review includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

 

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 MARCH 2023

 

	Note	For the year ended 31 March 2023 £'millions	For the year ended 31 March 2022 £'millions
Investment (loss)/income	5	(7.8)	88.8
Total operating income		(7.8)	88.8
Finance income		1.2	-
Fund expenses	6	(12.0)	(9.0)
(Loss)/Profit for the year before tax		(18.6)	79.8
Tax on (loss)/profit on ordinary activities	7	-	-
(Loss)/Profit for the year		(18.6)	79.8
Total comprehensive (loss)/income for the year		(18.6)	79.8
Attributable to: Equity holders of the Company		(18.6)	79.8
(Loss)/Earnings Per Ordinary Share (pence)	8	(1.8)	10.0

 

The accompanying Notes are an integral part of these financial statements.

 

All items in the above Statement derive from continuing operations.

 

 

 

 

STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2023

	Note	31 March 2023 £'millions	31 March 2022 £'millions
Non-current assets
Investment at fair value through profit or loss	11	1,127.8	928.2
		1,127.8	928.2
Current assets
Trade and other receivables		0.6	0.3
Cash and cash equivalents		0.3	146.1
		0.9	146.4
Current liabilities
Trade and other payables		(3.3)	(1.5)
Net current (liabilities)/assets		(2.4)	144.9
Net assets		1,125.4	1,073.1
Capital and reserves
Share capital	12	11.1	9.9
Share premium	12	1,056.8	925.1
Other distributable reserves	12	39.3	39.3
Retained earnings		18.2	98.8
Total equity		1,125.4	1,073.1
Net assets per share (pence)	10	101.5	108.4

 

The accompanying Notes are an integral part of these financial statements.

The financial statements were approved by the Board of Directors on 28 June 2023 and signed on its behalf by:

 

 

Sarika Patel                                                           Tony Roper

Director                                                                 Director           

Company number: 11620959

 

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEAR ENDED 31 MARCH 2023             

 

	Note	Share Capital £'millions	Share Premium £' millions			Other distributable reserves £' millions		Retained earnings £' millions		Total Equity £' millions
Balance at 1 April 2022		9.9		925.1	39.3		98.8		1,073.1
Shares issued	12	1.2		133.8	-		-		135.0
Share issue costs	12	-		(2.1)	-		-		(2.1)
Dividends paid	9	-		-	-		(62.0)		(62.0)
Loss and total comprehensive loss for the year		-		-	-		(18.6)		(18.6)
Balance at 31 March 2023		11.1		1,056.8	39.3		18.2		1,125.4

 

	Note	Share Capital £' millions		Share Premium £' millions	Other distributable reserves £' millions			Retained earnings £' millions		Total Equity £' millions
Balance at 1 April 2021		6.8	584.4			58.1	44.4		693.7
Shares issued		3.1	346.9			-	-		350.0
Share issue costs		-	(6.2)			-	-		(6.2)
Dividends paid	9	-	-			(18.8)	(25.4)		(44.2)
Profit and total comprehensive income for the year		-	-			-	79.8		79.8
Balance at 31 March 2022		9.9	925.1			39.3	98.8		1,073.1

                                                                                                       

The accompanying Notes are an integral part of these financial statement

 

STATEMENT OF CASHFLOWS

Cashflows from operating activities
Total Comprehensive (loss)/income for the year before tax		(18.6)	79.8
Adjustments for:
Loss/(gain) on investment at fair value through profit or loss		74.3	(47.8)
Loan interest income	5	(9.0)	(7.3)
Operating cashflows before movements in working capital		46.7	24.7
Changes in working capital
(Increase) in trade and other receivables		(0.3)	-
Increase in trade and other payables		1.8	0.3
Net cash generated from operating activities		48.2	25.0
Cashflows from investing activities
Additional investment in Holdco	11	(292.4)	(319.9)
Loan principal repayment received	11	18.5	12.0
Loan interest income received		9.0	7.3
Net cash used in investing activities		(264.9)	(300.6)
Cashflows from financing activities
Proceeds from the issue of shares Payment of share issue costs Dividends paid	12   9	135.0 (2.1) (62.0)	350.0 (6.2) (44.2)
Net cash generated from financing activities		70.9	299.6
Net movement during the year		(145.8)	24.0
Cash and cash equivalents at the beginning of the Year	2	146.1	122.1
Cash and cash equivalents at the end of the year	2	0.3	146.1

FOR THE YEAR ENDED 31 MARCH 2023

Note

For the year ended 31 March 2023 £'millions

For the year ended 31 March 2022 £'millions

The accompanying Notes are an integral part of these financial statements.

 

 

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2023

 

1.    General Information

 

SDCL Energy Efficiency Income Trust plc (the "Company") is a Public Company limited by shares, incorporated on 12 October 2018 and registered and domiciled in England, United Kingdom under number 11620959 pursuant to the Companies Act 2006 and is the ultimate controlling party of the group. The Company's registered office and principal place of business is 6th Floor, 125 London Wall, London, EC2Y 5AS.

The Company's ordinary shares were first admitted to the premium segment of the UK Listing Authority's Official List and to trading on the Main Market of the London Stock Exchange under the ticker SEIT on 11 December 2018.

The Company's objective is to generate an attractive total return for investors comprising stable dividend income and capital preservation, with the opportunity for capital growth through the acquiring and realising of a diverse portfolio of energy efficiency infrastructure projects.

The Company currently makes its investments through its principal holding company and single subsidiary, SEEIT Holdco, and intermediate holding companies which are directly owned by the Holdco. The Company controls the investment policy of each of the Holdco and its intermediate holding companies in order to ensure that each will act in a manner consistent with the investment policy of the Company.

The Company has appointed Sustainable Development Capital LLP as its Investment Manager (the "Investment Manager") pursuant to the Investment Management Agreement dated 22 November 2018. The Investment Manager is registered in England and Wales under number OC330266 pursuant to the Companies Act 2006. The Investment Manager is regulated by the FCA, number 471124.

The financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Company operates. All values are rounded to the nearest million (£ million), except otherwise indicated. As a result, the prior year numbers have been rounded to the nearest million to facilitate comparability.

 

2.    Significant Accounting Policies

 

a)         Basis of accounting

 

The financial statements of the Company have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006, as applicable to companies reporting under those standards. The financial statements are prepared under the historical cost convention, except for certain investments and financial instruments measured at fair value through the Statement of Comprehensive Income.

The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 March 2023 or 2022 but is derived from those financial statements. Statutory financial statements for 2022 have been delivered to the registrar of companies, and those for 2023 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

Fair value is the price that would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis.

The principal accounting policies adopted are set out below and consistently applied, subject to changes in accordance with any amendments in IFRS.

(i)    New standards and amendments to existing standards effective 1 April 2022

 

There are no standards, amendments to standards or interpretations that are effective for annual periods beginning on 1 April 2022 that have a material effect on the financial statements of the Company.

 

(ii)   New standards, amendments and interpretations effective after 1 April 2022 and have not been early adopted

 

A number of new standards, amendments and interpretations are effective for annual periods beginning after 1 April 2022 and have not been early adopted in preparing these financial statements. None of these are expected to have a material effect on the financial statements of the Company.

 

b)      IFRS 10 - basis of consolidation and Investment entities exemption

 

The Company applies IFRS 10 Consolidated Financial Statements. As in the previous year, the Directors have concluded that in accordance with IFRS 10, the Company continues to meet the definition of an investment entity having re-evaluated the criteria (see below) that need to be met. The financial statements therefore comprise the results of the Company only and no subsidiaries are consolidated on a line by line basis.

 

The Company invests its investable cash into SEEIT Holdco when a targeted investment has been approved by the Investment Manager's Investment Committee. The sole objective of the Holdco is to enter into several energy efficiency projects, via individual corporate entities. The Holdco issues equity and loans to finance the projects. Holdco also incurs overheads and borrowings on behalf of the group. As a result, the Directors have provided an alternative presentation of the Company's results in the Strategic Report which includes a consolidation of Holdco.

 

Under IFRS 10 investment entities are required to hold subsidiaries at fair value through the Statement of Comprehensive Income rather than consolidate them. There are three key conditions to be met by the Company for it to meet the definition of an investment entity. For each reporting period, the Directors assess whether the Company continues to meet these conditions:

(i) The Company has obtained funds for the purpose of providing investors with investment management services;

 

(ii) The business purpose of the Company, which was communicated directly to investors, is investing solely for risk-adjusted returns (including having an exit strategy for investments); and the performance of substantially all investments is measured and evaluated on a fair value basis.

 

The Company is an investment company, providing investors exposure to a diversified portfolio of energy efficiency infrastructure projects that are managed for investment purposes.

 

During the year ended 31 March 2023, the Company, via Holdco, made significant new investments, and as a result the size of the Company increased. These investments are described in Note 11. These investments were made in line with the stated objective of the Company to generate returns from capital appreciation and investment income in accordance with the strategy that has been set by the Directors. The Directors assessed each new investment carefully in order to determine whether the Company as a whole still meets the definition of an investment entity.

 

As part of the assessments the Directors had regard for the nature of the underlying business and operations and the exit strategy of each new investment and how that compared to the already existing portfolio. The Company's exit of investments may be at the time each investment reaches its current assumed end of economic life. The Company is investing in a sector for which there is an active secondary market and therefore the Company may also exit investments at an earlier stage for profit or for portfolio rationalisation purposes.

 

The assessments concluded that the new investments shared similar characteristics to the existing investments, are in line with the business purpose of the Company and that each has an appropriate exit strategy. In particular, the Directors noted that:

·      the underlying businesses and the structure of the new investments are in keeping with the existing portfolio through the provision of energy efficiency services to clients, or host counterparties, predominantly through long-term contracted agreements;

·      the underlying businesses are set up as Special Purpose Vehicles (SPV's) and although each SPV can have an indefinite life, the equipment associated with providing such services have finite lives, are capable of being upgraded or sold and the contracts can be renewed;

·      as part of the exit strategy for each new investment, the structure of that investment is such that it could be readily made available for sale; and

·      each new investment is measured at fair value.

 

Exit strategy:

The Company's general approach to exit is as follows:

·      The investments can be traded on the secondary market between willing buyers and willing sellers, therefore the Company can sell its interest in a project, via Holdco, before the end of its project life if there is an attractive offer from a buyer where the valuation is higher than the carrying of the specific asset.

 

 

·      Investments are not indefinite. Generally SEEIT would invest in a project for the maximum time frame during which it could achieve required capital appreciation and returns acceptable for the Company's shareholders even though the useful life of the underlying assets can be longer than the period the investment is held.

 

After assessing whether the Company meets the definition of an investment entity set out in IFRS 10 the Directors concluded that as a whole:

(i) the Company has multiple investors with shares issued publicly on London Stock Exchange and obtains funds from a diverse group of shareholders who would otherwise not have access individually to investing in energy efficiency projects;

 

(ii) the Company's purpose is to invest funds for both investment income and capital appreciation. The Holdco and its SPVs have indefinite lives however the underlying assets have minimal residual value because they do not have unlimited lives, are not to be held indefinitely and have appropriate exit strategies in place; and

 

(iii) the Company measures and evaluates the performance of all of its investments on a fair value basis which is the most relevant for investors in the Company. The Directors use fair value information as a primary measurement to evaluate the performance of all of the investments and in decision making.

 

c)       Going concern

 

The Directors have considered the following current matters alongside the regular cashflow and business activities in assessing that it is appropriate to prepare the financial statements on a going concern basis:

 

Continuation Vote

The Articles of the Company provide that a continuation vote be put to shareholders at the upcoming AGM to be held in September 2023.

The Directors recognise the importance of the continuation vote mechanism for shareholders and believe that there is no fundamental concern with the Company's prospects and it's ability to deliver value for shareholders.

The resolution requires a simple majority to pass and Directors and Investment Manager are confident the vote will be achieved. This is based on positive feedback from recent meetings held by the Chair or the Investment Manager with several major shareholders alongside discussions with the Company's Broker who has indicated their confidence the shareholders will vote in favour of continuation. The Company also has a strong track record of shareholder support through consistently oversubscribed capital raises since IPO and achieving overwhelming majority (over 90%) support for all resolutions at all its general meetings to date. The Directors believe the Company is well positioned, with substantial scale and a diversified portfolio able to deliver attractive returns.

Should the resolution not pass, the Directors note that this would not automatically result in the Company not continuing as a going concern. The requirement from the Articles of the Company would be for the Directors to put forward proposals within six months of the vote. In practice, the Directors would consider that this would be for a reconstruction, reorganisation or winding up.

Although the shareholder vote on continuation is outside of the control of the Company, the Directors remain confident that the Company's continuation vote will be passed and accordingly, having considered this carefully believe that it is appropriate to continue to adopt the going concern basis in preparing the financial statements.

   Ukraine conflict

In light of the events in Ukraine, the Board and the Investment Manager have been monitoring its continual development and performed an assessment of the current exposure to Ukraine, Russia and Belarus (the "Region") and the potential impact to the Company's and the portfolio companies' operations. The Company is a UK registered public company. Currently neither the Company nor the Investment Manager conducts business and operations in the Region; therefore the Company is not subject to any direct impact by this event.

 

With regards to the Company's investments, none of the portfolio companies have business operations or client / supplier relationships in the Region. Through this assessment, the Board and the Investment

Manager duly considered any restriction imposed by the relevant sanctions, and its impact on the portfolio companies and have concluded there are no direct material implications.

 

Inflation and cost of energy crisis

The global impact of the Russian invasion of Ukraine on the oil and gas prices is a significant contributor to inflation and cost of living rises globally at present. The Company has carried out an assessment of the impact of the global rise in inflation on its portfolio and have concluded that overall there is a positive correlation to inflation and there is no adverse impact. The Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of approval of the financial statements. The Directors have reviewed the Company's financial projections and cashflow forecasts, including the potential impact from this and believe, based upon those projections and forecasts and various risk mitigation measures in place, that it is appropriate to prepare the financial statements on a going concern basis.

 

Regular cashflow and business activity

The Company, through its investment in Holdco, benefits from a portfolio of investments that have a range of long-term contracts with a diversified set of counterparties across multiple sectors and jurisdictions. A key risk facing the Company is that counterparties to the investments may not be able to make their contractual payments. The Directors have reviewed a cashflow forecast to June 2024, taking into consideration potential changes in investment and trading performance and applying a 10% reduction in income to test the resilience of cashflows in the near term. The forecast results in positive cashflows for the foreseeable future that meets the liabilities as they fall due.

 

They also reviewed a severe downside scenario where the Company receives no income from its investment for the next 12 months but continue with existing committed payments for running the Company. Even under this stress scenario, the Company would have sufficient cash reserves to continue as a going concern. As at 31 March 2023, the Company's net assets were £1,125 million, including cash balances of £0.3 million.

 

Further amounts of cash are held by the Company's direct and indirect subsidiaries (including Holdco which has c.£62 million at the year-end), which are sufficient to meet current obligations as they fall due. The major cash outflows of the Company are the payment of dividends and payments relating to the investment in new assets, both of which are discretionary.

 

The Company's single subsidiary, Holdco, has a RCF that has adequate headroom in its covenants that have been tested for historic and forward interest cover and loan to value limits. As at 31 March 2023, the facility was undrawn. The Company is a guarantor to the RCF but has no other guarantees or commitments.

 

Closing summary

The Directors have considered the upcoming continuation vote, impact from the Ukraine conflict and the cost of living crisis, and relevant financial projections and cashflow forecasts.

 

The Directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of approval of the interim financial statements., and that it is appropriate to prepare the financial statements on a going concern basis.

 

d)            Segmental reporting

The Chief Operating Decision Maker ("CODM") being the Board of Directors, is of the opinion that the Company is engaged in a single segment of business, being investment in energy efficiency projects to generate investment returns whilst preserving capital. The financial information used by the CODM to manage the Company presents the business as a single segment.

 

e)            Foreign Currency Translation

 

Foreign currency and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates, the Company's functional currency. The financial statements are presented in pounds sterling which is the Company's functional and presentation currency.

 

Transactions and balances

Foreign currency transactions are translated into pounds sterling using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.

 

f)             Income

Dividend income and investment income from financial assets at fair value through profit or loss is recognised in the Statement of Comprehensive Income within investment income when the Company's right to receive payments is established.

 

Fair value gains on financial assets at fair value through profit or loss are recognised in the Statement of Comprehensive Income at each valuation point.

Finance income comprises interest earned on cash held on deposit. Finance income is recognised on an accruals basis. Loan interest income is accounted for on an accruals basis using the effective interest method.

 

g)            Dividends payable

Dividends to the Company's shareholders are recognised when they become legally payable. In the case of interim dividends, this is when they are paid. In the case of final dividends, this is when they are approved by the shareholders at the AGM.

 

h)            Fund expenses

All expenses including investment management fees, transaction costs, non-executive directors' fees are accounted for on an accruals basis. Share issue expenses of the Company directly attributable to the issue and listing of shares are charged to the share premium account.

 

i)             Acquisition costs

Acquisition costs are expensed to the Income Statement as they are incurred.

 

j)             Taxation

The Company is liable to UK corporation tax on its income. Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted at the date of the Statement of Financial Position. Fair value movements and dividends received by the Company are exempt from UK corporation tax.

 

k)            Cash and cash equivalents

Cash and cash equivalents include deposits held at call with banks and other short-term deposits with original maturities of three months or less. Cash is spread across three banks including at the Money market fund managed by JP Morgan. It is highly liquid investment and readily convertible to a known amount of cash. There is no expected credit loss as the bank institutions have credit ratings of at least BBB+ and all cash is held at call from the banks.

l)             Financial instruments

Financial assets and financial liabilities are recognised in the Company's Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cashflows from the instrument expire or the asset is transferred and the transfer qualifies for derecognition in accordance with IFRS 9 Financial instruments.

Investments are recognised when the Company has control of the asset. Control is assessed considering the purpose and design of the investments including any options to acquire the investments where these options are substantive. The options are assessed for factors including the exercise price and the incentives for exercise.

The Company classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value through profit or loss; and

• those to be measured at amortised cost.

At initial recognition, the Company measures investments in energy efficiency projects at its transaction price net of transaction costs that are directly attributable to the acquisition of the financial asset. The Company subsequently measures all investments at fair value and changes in the fair value are recognised as gains/(losses) on investments at fair value through profit or loss within investment income.

Financial liabilities are derecognised when the liability is extinguished, that is when the contractual obligation is discharged, cancelled or expired.

m)           Trade and other receivables

Trade and other receivables are non-derivative financial assets with fixed or determinable payments that not quoted in an active market. Those includes Prepayments, VAT Receivable and other receivables which are intercompany balances due from subsidiary. Receivables are initially recognised at fair value. They are subsequently measured at amortised cost, less any expected credit loss.

The Company has assessed IFRS 9's expected credit loss model and does not consider that there is a material impact on these financial statements.

n)            Trade and other payables

Trade and other payables include accruals and other payables and initially are recognised at fair value, and subsequently re-measured at amortised cost using the effective interest method.

o)            Share Capital and share premium

The Company's ordinary shares are not redeemable and are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction in equity and are charged from the share premium account. The costs incurred in relation to the IPO and subsequent fundraisings of the Company were charged from the share premium account.

 

3.         Critical accounting estimates and judgements

 

The preparation of financial statements in accordance with IFRS requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the year. Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period or in the period and future periods if the revision affects both current and future periods.

Judgements

Investment entity

As disclosed in Note 2, the Directors have concluded that the Company continues to meet the definition of an investment entity as defined in IFRS 10. This conclusion involved a degree of judgement and assessment as to whether the Company met the criteria outlined in the accounting standards.

 

Estimates

Investment valuations

 

The key area where estimates may be significant to the financial statements is the valuation of the Company's single subsidiary, SEEIT Holdco, which in turns holds investments in a portfolio that are held at fair value (the "Portfolio Valuation^(APM)").

IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Board of Directors has appointed the Investment Manager to produce the Portfolio Valuation^(APM) at 31 March 2023, which includes estimates of future cashflows that have the potential to have a material effect on the measurement of fair value.

The key estimates made include:

Discount rate

The weighted average unlevered discount rate (post tax) applied in the 31 March 2023 valuation was 7.7% (2022: 7.0%) and 8.5% on a levered basis (2022: 8.0%). The discount rate is considered one of the most unobservable inputs through which an increase or decrease would have a material impact on the fair value of investment at fair value through profit or loss. An appropriate discount rate is applied to each underlying asset. The range of discount rates applied and its sensitivity to movements in discount rates is shown in note 4.

Macroeconomic assumptions

Further estimates have been made on the key macroeconomic assumptions that are likely to have a material effect on the measurement of fair value being inflation, corporation tax and foreign exchange which are further described in Note 4.

Investment specific cashflow assumptions and sensitivities

The below highlights several key investment specific estimates made for the Portfolio Valuation^(APM) at 31 March 2023:

Primary Energy - An estimate has been made to determine the future demand for generation by the offtaker in the PCI asset. If the demand assumed is 25% less than estimated, the Portfolio Valuation^(APM) at 31 March 2023 could be reduced by between £10 million and £20 million, assuming no other mitigants are available.

An estimate in relation to the Cokenergy asset has been included for the cash flows that can be generated through renewal of contract terms with the counterparty after the expiry of the existing contract terms. Although this assumption has not changed materially since March 2022, if the actual increase in contractual terms assumed for the Cokenergy investment is 50% less than estimated, the Portfolio Valuation^(APM) at 31 March 2023 could be reduced by between £10 million and £20 million, assuming no other mitigants are available.

Onyx - The process of converting development assets into construction and then operational stages has been adversely affected by delays in the financial year, however an estimate has been made for the amount of megawatts that is expected to be become mechanically complete and earn revenues in 2024 and 2025. If only 75% of the megawatts are achieved in each of 2024 and 2025, the Portfolio Valuation^(APM) at 31 March 2023 could be reduced by between £5 million and £10 million, assuming no other mitigants are available.

An estimate has been made for the amount of megawatts that is expected to be deployed from the development pipeline in 2025 to 2029 which are valued on an EV multiple per MW. This estimate and methodology has not changed since March 2022, however if only 50% of the development pipeline is achieved, the Portfolio Valuation^(APM) at 31 March 2023 would be reduced by between £20 million and £30 million, assuming no other mitigants are available.

Oliva Spanish Cogeneration - There are updates under the regulatory regime governing the nine investments that have currently been published in draft form and awaiting finalisation. Key estimates are made by applying the draft legislation. If the final legislation differs materially from the draft legislation and no other changes are introduced, then the Portfolio Valuation^(APM) at 31 March 2023 could be reduced by between £10 million and £20 million.

RED-Rochester - Estimates have been made regarding future capital expenditure projects at the site and the expected increase to overall revenues, the most material being the construction of a cogeneration plant expected to complete in 2025. If the cogeneration plant delivers only 75% of the energy savings currently assumed, the Portfolio Valuation^(APM) at 31 March 2023 would be reduced by between £10 million and £20 million.

Estimates have been included for revenues related to providing electricity to customers based on projected demands and an assumed power price charged to customers. If market power pricing is 25% lower than assumed, the Portfolio Valuation^(APM) at 31 March 2023 would be reduced by between £5 million and £10 million.

In addition, estimates have been included, based on projected growth of earnings in the RED-Rochester business, that a gain share pay-out will be made to the external asset management team tasked with delivering the growth within the next seven years, linked to the investment increasing its profitability. Furthermore, the projected growth is assumed to deliver a business capable of continuing to serve customers at the Eastman Business Park for a further 20 years beyond the c. 20 years lifetime previously assumed. Should only 15 years of the targeted economic life extension occur, the Portfolio Valuation^(APM) at 31 March 2023 would be reduced by between £10 million and £20 million, assuming no other mitigants are available.

Värtan Gas - The future cashflows includes an assumption that the management team will target a decline in customer numbers at a year-on-year rate that is lower than the historic average decline. There are also a number of accretive expansion opportunities for the Värtan Gas investment in the Stockholm region's transport sector for which estimates have been made around the future growth profile in relation to decarbonisation targets and electrification. If the recent historic average rate to customers is applied for the next five years and no growth in revenue from transport is achieved over the next ten years, the valuation may potentially reduce by between £10 million and £20 million, assuming no other mitigants are available.

 

4.   Financial Instruments

 

Valuation methodology

As detailed in Note 1 and Note 11, the Company has a single investment directly wholly owned holding company (Holdco). It recognises this investment at fair value. To derive the fair value of Holdco, the Company determines the fair value of investment held directly or indirectly by Holdco and adjusts for any other assets and liabilities. See Note 11 for a reconciliation of this fair value. The valuation methodology applied by Holdco to determine the fair value of its investments is described below.

 

The Directors have satisfied themselves as to the methodology used and the discount rates and key assumptions applied in producing the valuations. All investments are at fair value through profit or loss.

For non-market traded investments (being all the investments in the current portfolio), the valuation is based on a discounted cashflow methodology and adjusted in accordance with the IPEV (International Private Equity and Venture Capital) valuation guidelines where appropriate to comply with IFRS 13 and IFRS 9, given the special nature of infrastructure investments. Where an investment is traded in an open market, a market quote is used. Certain investments may be held at cost if in the early part of a construction phase, however this will still be supported by a discounted cashflow analysis or similar method to determine fair value. For certain investments, fair value is determined through assuming a price that can be achieved per MW.

The Investment Manager exercises its judgement in assessing the expected future cashflows from each investment based on the project's expected life and the financial models produced for each project company and adjusts the cashflows where necessary to take into account key external macroeconomic assumptions and specific operating assumptions. Assumptions for future cashflows may include successful recontracting and project life extensions as well as cashflow linked to assumptions made on growth rates and further business development opportunities within existing projects.

The fair value for each investment is then derived from the application of an appropriate market discount rate (on an unlevered basis) to reflect the perceived risk to the investment's future cashflows and the relevant year end foreign currency exchange rate to give the present value of those cashflows. Where relevant, project level debt balances are then netted off to arrive at the valuation for each investment The discount rate takes into account risks associated with the financing of an investment such as investment risks (e.g. liquidity, currency risks, market appetite), any risks to the investment's earnings (e.g. predictability and covenant of the income) and a thorough assessment of counterparty credit risk, all of which may be differentiated by the phase of the investment.

 

Specific risks related to each asset that can be attributed to the Ukraine conflict or climate-related risks are assessed and where required, adjustments are made to expected future cashflows or reflected in the asset specific discount rate that is applied.

 

The Investment Manager uses its judgement in arriving at the appropriate discount rate. This is based on its knowledge of the market, taking into account intelligence gained from its bidding activities, discussions with financial advisers in the appropriate market, and publicly available information on relevant transactions.

All the operational investments included in the valuation have an underlying contract for energy services. The valuation is based on the future expected cashflow derived from these contracts. For the March 2023 valuation the assumed cashflows match the maturity of the underlying contract or regulatory life of the asset except in the case of RED-Rochester, four of the assets in Primary Energy, the assets in Oliva, and the development assets in Onyx and EVN where it is assumed that future contract extensions are achieved and hence the expected cashflows are currently projected to extend beyond the maturity date of the existing contract with the counterparty.

For the valuation as at 31 March 2023, the Directors commissioned a report from an independent third-party valuation expert to provide their assessment of the appropriate discount rate range for each investment (excluding small investments with an aggregate value of less than 2% of the Portfolio Valuation^(APM)) in order to further benchmark the valuation prepared by the Investment Manager.

The valuation methodology is materially unchanged from the Company's IPO and has been applied consistently in each subsequent valuation. Different measures are used to derive fair value, as summarised below:

 

Valuation approach	Investments	% of Portfolio Valuation(APM)
Discounted cashflow ("DCF")	All remaining investments	95%
Held at cost	Turntide Iceotope EVN (Zood construction)	3%
Price per MW	Onyx Development Pipeline	2%
Total		100%

 

 

Fair value measurement by level

IFRS 13 requires disclosure of fair value measurement by level. Fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety which are described as follows:

•     Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Company can access at the measurement date;

•     Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

•     Level 3 inputs are unobservable inputs for the asset or liability.

The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments.

Investment at fair value through profit or loss	Level 1 £'millions	Level 2 £'millions	Level 3 £'millions
31 March 2023	-	-	1,127.8
31 March 2022	-	-	928.2

 

The Company's indirect investments have been classified as level 3 as the investments are not traded and contain unobservable inputs. As the fair value of the Company's equity and loan investments in the Holdco is ultimately determined by the underlying fair values of the SPV investments or debt schedules, the Company's sensitivity analysis of reasonably possible alternative input assumptions is the same across all its investments. The reconciliation of Level 3 fair value is disclosed in Note 11.

 

Valuation Assumptions

		31 March 2023	31 March 2022
Inflation rates	UK (RPI)	7.8% declining to 3.0% by 2025, 3.0% p.a. long-term	7.9% declining to 3.5% by 2024, 2.75% p.a. long-term
	UK (CPI)	6.6% declining to 1.5% by 2025, 2.0% p.a. long-term	6.0% declining to 2.3% by 2024, 2.00% p.a. long-term
	Spain (CPI)	4.6% declining to 2.1% by 2025, 2.0% p.a. long-term	5.8% declining to 1.7% by 2024, 2.00% p.a. long-term
	Sweden (CPI)	7.0% declining to 2.2% by 2025, 2.0% p.a. long-term	3.4% declining to 2.0% by 2024, 2.00% p.a. long-term
	Singapore (CPI)	5.0% declining to 2.0% by 2025, 2.0% p.a. long-term	3.2% declining to 2.0% by 2024, 2.00% p.a. long-term
	Ireland (CPI)	5.8% declining to 2.3% by 2025, 2.0% p.a. long-term	4.8% declining to 2.0% by 2024, 2.00% p.a. long-term
	USA (CPI)	3.7% declining to 2.1% by 2025, 2.0% p.a. long-term	6.3% declining to 2.0% by 2024, 2.00% p.a. long-term
Tax rates	UK	25%	19% to 2023, 25% thereafter
	Spain	25%	25%
	Sweden	20.6%	21.4%
	Singapore	17%	17%
	Ireland	12.5%	17%
	USA	21% Federal & 3-9% State rates	21% Federal & 3-9% State rates
Foreign exchange rates	EUR/GBP	0.88	0.84
	SEK/GBP	0.08	0.08
	SGD/GBP	0.61	0.56
	USD/GBP	0.81	0.76

 

Discount rates

The discount rates used for valuing each investment are described in the Valuation Methodology section above. The discount rates used for valuing the investments in the portfolio are as follows:

	31 March 2023	31 March 2022
Weighted Average discount rate (on unlevered basis)	7.7%	7.0%
Discount rates	4.75% to 10.25%	4.0% to 10.0%

 

Sensitivities

The sensitivities below show the effect on Net asset value^(APM) of assuming a different range for each key input assumption, in each case applying a range that is considered to be a reasonable and plausible outcome for the market in which the Company has invested.

Discount rates

The discount rates that are applied to each project's forecast cashflow, form in aggregate the single most important judgement and variable for the purposes of valuing the portfolio. The sensitivity shown in this section shows the sensitivity of changing the underlying discount rates for each underlying project and where such a project has debt in place, the sensitivity takes into account the levered discount rate of the project.

Discount rate	NAV/share impact	-0.5% change	Net asset value	+0.5% change	NAV/share impact
31 March 2023	5.0p	£55.1m	£1,125.4m	(£50.3m)	(4.5p)
31 March 2022	4.5p	£44.1m	£1,073.1m	(£40.6m)	(4.1p)

 

Inflation rates

The Company's exposure to inflation via its investment portfolio is currently largely to the USA and Europe with c.59% and c.37% of NAV respectively although the level of exposure to changes in inflation in underlying investments in each geography varies. The investment portfolio as at 31 March 2023 has a positive correlation to inflation with approximately half of the current portfolio by value having revenues that are partly or wholly inflation linked.

The Company's portfolio includes investments that benefit from fixed or escalating revenues that are not directly linked to inflation. This includes the assets in Primary Energy where periodic recontracting is assumed in the valuation. It is assumed that the renewed revenue contracts (subject to negotiations) entered into in future years reset the revenues at such a level that it materially offsets increases to project level costs such as O&M that is materially inflation-linked, effectively offsetting the effect of inflation. Within the portfolio of Oliva Spanish Cogeneration assets there is some natural offsetting or protection between revenues and costs for inflation increases and decreases. The assumption in the Värtan Gas investment is that the regular renewals of customer contracts (typically annually) include inflationary increases to the tariffs charged, however it is also assumed that this would not result in the charges being above the regulatory cap and that the full inflationary increase is not passed on to the customer each time. In the current portfolio there are several investments with no or negligible exposure to inflation, notably the where investments are structured as senior debt loan investments.

 

As a result of the continued high inflationary environment, the Company has changed the sensitivity to inflation as at 31 March 2023 to 1.00% (31 March 2022: 0.5%)

 

 

Inflation rate	NAV/share impact	-1% (2022: -0.5%) change	Net asset value	+1% (2022: +0.5%) change	NAV/share impact
31 March 2023	(1.5p)	(£16.4m)	£1,125.4m	£18.3m	1.7p
31 March 2022	(1.1p)	(£10.5m)	£1,073.1m	£11.9m	1.2p

 

Corporation tax rates

The sensitivity is shown on the basis that corporation tax rates remain at the sensitised level for the remainder of any period in which cashflow is assumed for that project and that no mitigations that may be available are applied. Key mitigants available include portfolio structuring changes including gearing^(APM), and the option available to the Company to use interest streaming of dividend distributions to shareholders in the future, whereby a portion of the dividend distribution is designated as interest, allowing net taxable interest income to be reduced.

The sensitivity mainly shows the unmitigated impact of changes in US, Swedish, Irish, Singaporean and Spanish tax rates. The exposure to UK corporation tax at project level has negligible sensitivity to the sensitised movements in UK corporation tax rates because of UK entities within the group being able to offset aggregate profits and losses, whilst in Spain the impact is reduced for similar reasons.

Corporation tax rate	NAV/share impact	-5% change	Net asset value	+5% change	NAV/share impact
31 March 2023	2.7p	£29.5m	£1,125.4m	(£29.8m)	(2.7p)
31 March 2022	3.2p	£31.7m	£1,073.1m	(£33.0m)	(3.3p)

 

Foreign exchange rates

The Portfolio Valuation^(APM) assumes foreign exchange rates based on the relevant foreign exchange rates against GBP at the reporting date. A change in the foreign exchange rate by plus or minus 10% (GBP against Euro, Swedish Krona, Singapore Dollar and US Dollar) has the following effect on the NAV, with all other variables held constant. The effect is shown after the effect of current level of hedging which reduces the impact of foreign exchange movements on the Company's NAV.

 

Foreign exchange rate	NAV/share impact	-10% Change	Net asset value	+10% change	NAV/share impact
31 March 2023	0.8p	£9.0m	£1,125.4m	(9.0m)	(0.8p)
31 March 2022	0.8p	£8.3m	£1,073.1m	(£7.6m)	(0.8p)

 

 

 

5. Investment Income

	Year ended 31 March 2023 £'millions	Year ended 31 March 2022 £'millions
Dividend income	57.5	33.7
(Loss)/Gain on investment at fair value through profit or loss (Note 11)	(74.3)	47.8
Loan interest income	9.0	7.3
Investment (loss)/income	(7.8)	88.8

 

Loan interest income is in respect of coupon bearing loan notes issued to the Company by Holdco (Note 15) for the year ended 31 March 2023. The loan notes accrue interest at 6%, are unsecured and repayable in full on 18 April 2039. Loan Interest income is recognised on the Statement of Comprehensive Income on an accruals basis. The loss/gain on investment is unrealised.

 

6. Fund Expenses

	Year ended 31 March 2023 £'millions	Year ended 31 March 2022 £'millions
Investment management fees (Note 15)	9.6	7.2
Non-executive directors' fees (Note 16)	0.3	0.3
Other expenses	1.3	1.0
Fees to the Company's independent auditors:
- for the audit of the statutory financial statements	0.7	0.4
- for audit-related assurance services	0.1	0.1
Fund Expenses	12.0	9.0

 

As at 31 March 2023, the Company had no employees (31 March 2022: nil) apart from Directors in office. The Company confirms that it has no key management personnel, apart from the Directors disclosed in Directors' Remuneration Report of the Annual Report. There is no other compensation apart from those disclosed. Other expenses include professional fees, administration fees, irrecoverable VAT and other fees in relation to the running of the Company.

 

 

7. Tax

 

         The tax for the year shown in the Statement of Comprehensive Income is as follows.

	Year ended 31 March 2023 £'millions	Year ended 31 March 2022 £'millions
(Loss)/Profit for the year before taxation	(18.6)	79.8
Tax on (loss)/profit on ordinary activities for the year multiplied by the standard rate of corporation tax of 19% (31 March 2022: 19%)	(3.5)	15.2
Fair value movements (not subject to taxation)	14.1	(9.1)
Dividends received (not subject to taxation)	(10.9)	(6.4)
Surrendering of tax losses to unconsolidated subsidiaries	0.3	0.3
Total tax charge	-	-

 

The corporation tax rate will increase from 19% to 25% with effect from 1 April 2023. No deferred tax was recognised in the periods.

 

8. (Loss)/Earnings per Ordinary Share

	Year ended 31 March 2023	Year ended 31 March 2022
(Loss)/Profit for the year (£'millions)	(18.6)	79.8
Weighted average number of ordinary shares ('000)	1,056,150	795,954
(Loss)/Earnings per ordinary share (pence)	(1.8)	10.0

 

There is no dilutive element during the financial year and subsequent to the financial year.

 

 

9. Dividends

	Year ended 31 March 2023 £'millions	Year ended 31 March 2022 £'millions
Amounts recognised as distributions to equity holders during the year:
Fourth quarterly interim dividend for the year ended 31 March 2021 of 1.375p per share	-	9.3
First quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share	-	9.5
Second quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share	-	12.7
Third quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share	-	12.7
Fourth quarterly interim dividend for the year ended 31 March 2022 of 1.405p per share	13.9	-
First quarterly interim dividend for the year ended 31 March 2023 of 1.5p per share	14.9	-
Second quarterly interim dividend for the year ended 31 March 2023 of 1.5p per share	16.6	-
Third quarterly interim dividend for the year ended 31 March 2023 of 1.5p per share	16.6	-
Total Dividends	62.0	44.2

 

All dividends have been paid out of distributable reserves. Further information on distributable reserves can be found in Note 12.

 

In June 2023, the Company declared a fourth interim dividend for the year ended 31 March 2023 of 1.5p per share which is expected to result in a cash payment of approximately £16.5 million on 30 June 2023.

 

10. Net assets per share

		31 March 2023	31 March 2022
Shareholders' equity (£'millions)	1,125.4			1,073.1
Number of ordinary shares ('000)	1,108,709			990,288
Net assets per ordinary share (pence)	101.5			108.4

 

 

11. Investment at fair value through profit or loss

The Company recognises the investment in Holdco, its single directly owned holding company, at fair value. Holdco's fair value includes the fair value of each of the individual project companies and holding companies in which the Holdco holds a direct or an indirect investment, along with the working capital of Holdco.

 

	Year ended 31 March 2023 £'millions	Year ended 31 March 2022 £'millions
Brought forward investment at fair value through profit or loss	928.2	572.6
Loan investments in year	-	96.8
Equity investments in year	292.4	223.0
Loan Principal repaid in year	(18.5)	(12.0)
Movement in fair value	(74.3)	47.8
Closing investment at fair value through profit or loss	1,127.8	928.2

 

Movement in fair value is recognised through Investment Income in the Statement of Comprehensive Income (see Note 5).

 

Of the closing investment at fair value through profit and loss balance, £131 million (31 March 2022: £150 million) relates to loan investment (also see Note 5) and £996 million (31 March 2022: £778 million) relates to equity investment.

 

A reconciliation between the Portfolio Valuation^(APM), being the valuation of the Investment Portfolio held by Holdco, and the Investment at fair value through profit or loss per the Statement of Financial Position is provided below. The principal differences are the balances in Holdco for cash and working capital.

 

	31 March 2023 £'millions		31 March 2022 £'millions
Portfolio Valuation		1,099.6		912.7
Holdco cash		65.4		24.9
Holdco debt		-		-
Holdco net working capital		(37.2)		(9.4)
Investment at fair value per Statement of Financial Position		1,127.8		928.2

 

Investments by the Company

 

During the year ended 31 March 2023, the Company invested £292.4 million (31 March 2022: £320 million) into Holdco for new portfolio investments and to fund acquisition costs. Acquisition costs are expensed to the income statement at Holdco as they are occurred.

 

Portfolio Investments, via Holdco

During the year ended 31 March 2023, Holdco invested £236 million (31 March 2022: £300 million) in new portfolio investments. The Company announced the following investment activity in the period:

 

Project	Investment/Commitment Date	Type	Location	Investment/ Commitment Amount
Baseload	Various in the period	New	Sweden	c.£4m
Turntide	May 2022	New	USA	c.£8m
Iceotope	June 2022	New	UK	c.£3m
UU Solar	July 2022	New	UK	c.£100m
On.Energy	August 2022	New	USA	c.£4m
Biotown	Various in the period	Organic	USA	c.£1m
Onyx	Various in the period	Organic	USA	c.£50m
Spark US Energy Efficiency II	Various in the period	Organic	USA	c.£12m
Tallaght Hospital	Various in the period	Inorganic	Ireland	c.£4m
EV Network	Various in the period	Organic	UK	c.£23m
FES Lighting	Various in the period	Organic	USA	c.£6m
Lycra	Various in the period	Organic	Singapore	c.£3m
Bloc	November 2022	New	UK	c.£0.2m
RED-Rochester	January 2023	Organic	USA	c.£16m

 

12. Share capital and share premium

 

Ordinary Shares of £0.01	Year ended 31 March 2023 '000	Year ended 31 March 2022 '000
Authorised and issued at the beginning of the year	990,288	677,087
Shares Issued - during the year	118,421	313,201
Authorised and issued at the end of year	1,108,709	990,288

 

 

	Share capital £'millions	Share Premium 'millions
Total as at 1 April 2022	9.9	925.1
Issue of ordinary shares	1.2	133.8
Costs of issue of ordinary shares	-	(2.1)
Total as at 31 March 2023	11.1	1,056.8

 

In September 2022, the Company issued 118,421,053 new ordinary shares at a price of 114p per share raising gross proceeds of £135 million.

 

The Company currently has one class of ordinary share in issue. All the holders of the £0.01 ordinary shares, which total 1,108,709k (31 March 2022: 990,288k) and are fully paid (31 March 2022: fully paid), are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company.

 

On 3 April 2023, the company announced the commencement of a Share Buyback Programme. The Share Buyback Programme will be funded from the Company's surplus liquidity and operating cashflows from the portfolio and only undertaken where the Board and the Investment Manager believe it to be in the shareholders' best interests at the prevailing share price and accretive to NAV per ordinary Share.

 

The Company has allocated up to £20 million of its FY2024 operational income from SEEIT Holdco to the Share Buyback Programme and will review this allocation on an ongoing basis considering the Company's ongoing liquidity position, the opportunity cost of investing in its own shares versus investing in its existing portfolio or pipeline of asset opportunities, as well as the discount to NAV that the shares are trading at.

 

Other distributable reserves were created through the cancellation of the Share Premium account on 12 March 2019. This amount is capable of being applied in any manner in which the Company's profits available for distribution, as determined in accordance with the Companies Act 2006, are able to be applied.

 

Other distributable reserves and Retained Earnings are detailed in the Statement of Changes in Shareholders' Equity.

 

13. Financial risk management

Financial risk management objectives

The objective of the Company's financial risk is to manage and control risk exposure of the underlying investment portfolio held by Holdco. The Board is responsible for overseeing the management of financial risks, however the review and management of financial risks is delegated to the Investment Manager. The Investment Manager monitors and manages the financial risks relating to the operations of the Company through internal procedures and policies designed to identify, monitor and manage the financial risks to which the Company is exposed.

These risks include market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk.

 

Price risk

The value of the investments directly and indirectly held by the Company is affected by the discount rate applied to the expected future cashflows and as such may vary with movements in interest rates, inflation, power prices, market prices host demand for energy services and competition for these assets.

 

Currency risk

Currency risk is the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company receives loan interest, loan principal and dividends from its single investment, Holdco, in sterling. However, the Company is indirectly exposed to currency risk through its Holdco as its investments include non-sterling investments are held in euro, US dollar, Singapore dollar and Swedish krona.

 

The Company monitors its foreign exchange rate exposures using its near-term and long-term cashflow forecasts. Its policy is to use foreign exchange hedging to provide protection to the level of sterling distributions that the Company aims to pay over the medium-term, where considered appropriate. This may involve the use of forward exchange.

 

Interest rate risk

Interest rate risk is the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in market interest rates.

The Company, via Holdco, invests indirectly in loans in project companies, usually with fixed interest rate coupons. Where floating rate debt is owned, the primary risk is that the portfolio's cashflow will be subject to variation depending on changes to base interest rates. The portfolio's cashflows are continually monitored and re-forecasted to analyse the cashflow returns from investments.

The Company's policy is to ensure that interest rates are sufficiently hedged, when entering into material medium/long-term borrowings, to protect the Company and portfolio companies' net interest margins from significant fluctuations in interest rates. This may include engaging in interest rate swaps or other rate derivative contracts at the subsidiary level under direction of the Company.

The Company's financial assets and financial liabilities are at a pre-determined interest rate, as a result the Company is subject to limited exposure to risk due to fluctuations in the prevailing levels of market interest rates.

 

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company through a reduction in future expected cash receipts.

The key counterparties are the project companies in which the Company makes indirect investments via Holdco. The projects companies' near-term cashflows forecasts are used to monitor the timing of cash receipts from project counterparties and are reviewed regularly to demonstrate the projects' ability to pay interest and dividends when they fall due.

The Company does not have any significant credit risk exposure to any single counterparty in relation to trade and other receivables. On-going credit evaluation is performed on the financial condition of accounts receivable.

As at 31 March 2023, there were no receivables considered impaired (31 March 2022: nil). At an investment level, the credit risk relating to significant counterparties is reviewed on a regular basis and potential adjustments to the discount rate are considered to recognise changes to these risks where applicable.

The Company maintains its cash and cash equivalents across various banks to diversify credit risk. These are subject to the Company's credit monitoring policies including the monitoring of the credit ratings issued by recognised credit rating agencies. The Company's cash and deposits are held with counterparties that meet strict investment rating criteria per the Company's treasury policy.

The Company is at risk of credit loss on its loans, receivables, cash and deposits. Underlying investments are held by Holdco at fair value using discounted cashflows. Receivables are primarily intercompany and taxation. While cash and cash equivalents are subject to the impairment requirements of IFRS 9, there was no identified credit loss.

 

The Company's maximum exposure to credit risk over financial assets is the carrying value of those assets in the Statement of Financial Position.

 

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Board of Directors has established an appropriate liquidity risk management framework for the management of the Company's short-, medium- and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves by monitoring forecast and actual cashflows and by matching the maturity profiles of assets and liabilities.

Risk is spread by holding cash at three separate banking institutions and the Company also ensures that Holdco has sufficient banking facilities by continuously monitoring forecast and actual cashflows and matching the maturity profiles of financial assets and liabilities.

Unconsolidated project companies are subject to contractual agreements that may impose temporary restrictions on their ability to distribute cash. Such restrictions are not deemed significant in the context of the overall liquidity.

Liquidity risk (continued)

The table below shows the maturity of the Company's non-derivative financial assets and liabilities. The amounts disclosed are contractual, undiscounted cashflows and may differ from the actual cashflows received or paid in the future as a result of early repayments. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

As at 31 March 2023	Up to 3 months £'millions	Between 3 and 12 months £'millions	Between 1 and 5 years £'millions		Total £'millions
Assets
Cash and cash equivalents	0.3	-		-	0.3
Trade and other receivables	0.6	-		-	0.6
Liabilities
Trade and other payables	(3.3)	-		-	(3.3)
Total	(2.4)	-		-	(2.4)

 

As at 31 March 2022	Up to 3 months £'millions	Between 3 and 12 months £'millions	Between 1 and 5 years £'millions		Total £'millions
Assets
Cash and cash equivalents	146.1	-		-		146.1
Trade and other receivables	-	-		-		-
Liabilities
Trade and other payables	(1.5)	-		-		(1.5)
Total	144.6	-		-		144.6

 

Capital management

The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders. In accordance with the Company's investment policy, the Company's principal use of cash (including the proceeds of the IPO) has been to fund investments via Holdco as well as ongoing operational expenses.

The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company's capital on an ongoing basis. The capital structure of the Company consists entirely of equity (comprising issued capital, distributable reserves and retained earnings).

The Company is not subject to any externally imposed capital requirements.

 

 

14. Related undertakings

The following table shows the Company's single direct subsidiary (SEEIT Holdco Limited). Appendix A lists the company's indirect subsidiaries through SEEIT Holdco Limited.

 

Investment	Country of incorporation & Place of Business	Shareholding at 31 March 2023
SEEIT Holdco Limited	United Kingdom	100%

 

 

 

15. Related parties

The Company and Sustainable Development Capital LLP (the "Investment Manager") have entered into the Investment Management Agreement pursuant to which the Investment Manager has been given responsibility, subject to the overall supervision of the Board, for active discretionary investment management of the Company's portfolio in accordance with the Company's investment objective and policy.

As the entity appointed to be responsible for risk management and portfolio management, the Investment Manager is the Company's AIFM. The Investment Manager has full discretion under the Investment Management Agreement to make investments in accordance with the Company's investment policy from time to time. This discretion is, however, subject to: (i) the Board's ability to give instructions to the Investment Manager from time to time; and (ii) the requirement of the Board to approve certain investments where the Investment Manager has a conflict of interest in accordance with the terms of the Investment Management Agreement. The Investment Manager also has responsibility for financial administration and investor relations, advising the Company and its group in relation to the strategic management of the portfolio, advising the Company in relation to any significant acquisitions or investments and monitoring the Company's funding requirements.

Under the terms of the Investment Management Agreement, the Investment Manager will be entitled to a fee calculated at the rate of:

·      0.9%, per annum of the adjusted NAV in respect of the Net Asset Value^(APM) of up to, and including, £750 million; and

·      0.8%, per annum of the adjusted NAV in respect of the Net Asset Value^(APM) in excess of £750 million.

The management fee is calculated using an adjusted NAV which is the latest published NAV at the relevant time, less uncommitted cash and adjusted on a daily basis for new acquisitions, new cash committed to investments, disposals and changes in amounts of debt drawn.

The management fee accrues monthly and is invoiced monthly in arrears. During the year ended 31 March 2023, management fees of £9.6 million (31 March 2022: £7.2 million) were incurred of which £2.5 million (31 March 2022: £0.7 million) was payable at the year-end.

During the year ended 31 March 2023, £292.4 million (31 March 2022: £319.9 million) of funding was provided by the Company to the Holdco for investment acquisitions and the repayment of the RCF utilised by Holdco.

15. Related parties (continued)

During the year ended 31 March 2023, coupon bearing loan notes of £nil (31 March 2022: £96.8 million) were issued which accrue interest at 6%. During the year ended 31 March 2023, Holdco had repaid coupon bearing loan notes of £18.5 million (31 March 2022: £12.0 million). In the year to 31 March 2023, £8.9 million interest had accrued on the loan notes (31 March 2022: £7.3 million) of which £0.2 million is outstanding at the year-end (31 March 2022: £nil).

All of the above transactions were undertaken on an arm's length basis and there have been no changes in material related party transactions since the last annual report.

 

16. Key management personnel transactions

The Directors of the Company, who are considered to be key management, received fees for their services. Their fees were £0.3m (disclosed as non-executive directors' fees in Note 6) in the year (31 March 2022: £0.3m) which included £289k for Director salaries (31 March 2022: £254k), £18k for national insurance contributions (31 March 2022: £18k) and £10k for the reimbursement of expenses (31 March 2022: £3k).

 

17. Guarantees and other commitments

 

The Company is the guarantor of the RCF between Holdco and Investec Bank plc.

 

The company holds a revolving-credit facility (RCF) that it holds through its wholly owned subsidiary, SEEIT Holdco amounting to £180 million. The RCF, which is SONIA linked and has a margin of 2.65%, expires in June 2024 with options to extend for a further two years and includes an accordion function for a further £20 million increase on an uncommitted basis.

 

18. Events after the reporting period

 

The Directors have evaluated subsequent events from the date of the financial statements through to the date the financial statements were available to be issued.

Between April and June 2023, the Company made the following investments, via SEEIT Holdco:

·     A further c. £2.3 million in RED-Rochester

·     A further c. £2.2 million in FES Lighting

·     A further c. £5.1 million in Onyx

·     A further c. £6.9 million in Spark US Energy Efficiency II

·     A new investment of c. £1.2 million into CPP Biomass

·     A new investment of c. £2.3 million into thermal energy storage company.

·     Acquisition of remaining 50% stake on Onyx's development platform for an initial c. £4.0 million plus performance related contingent deferred consideration in future periods

 

On 3 April 2023, the company announced the commencement of a Share Buyback Programme. See note 12 for further details.

 

 

GLOSSARY OF FINANCIAL ALTERNATIVE PERFORMANCE MEASURES ("APM")

The Company uses APM's to provide shareholders and stakeholders with information it deems relevant to understand and assess the Company's historic performance and its ability to deliver on the stated investment objective.

Measure	Calculation	Why the Company uses the APM	31 March 2023	31 March 2022 (comparison)	Reconciliation/cross reference
Gross Asset Value ("GAV")	All assets of the Company (Non-current assets and current assets)	It provides a metric that allows for useful analysis of underlying portfolio exposures	£1,128.7m	£1,074.6m	Statement of Financial Position shows Non-current assets and Current assets)
Net Asset Value ("NAV")	Net assets attributable to Ordinary Shares by deducting gross liabilities (£3.3m) from gross assets (£1,128.7m)	It provides a metric that allows for useful comparison to similar companies and that allows for useful year-on-year comparisons of the Company	£1,125.4m	£1,073.1m	NAV is shown on the Statement of Financial Position
NAV per share	NAV (£1,125.4m),divided by total shares in issue 1,108.7m at the balance sheet date	This provides shareholders with a metric that allows for tracking the Company's performance year on year	101.5p	108.4	NAV per share shown on the Statement of Financial Position
Total Return on NAV basis	Interim dividends paid and movement in NAV per share over the course of the relevant period, divided by opening NAV   NAV return in the period: Dividends paid: 5.9p NAV movement: -6.9p   NAV return since IPO: Dividends paid: 21.6p NAV movement: 3.5p	This provides shareholders with a metric that allows for tracking the Company's performance year on year	(0.9%)	11.2%	Referred to in the Highlights section and Financial Review and Valuation Update
Portfolio Basis	Portfolio Basis includes the impact if Holdco (the Company's only direct subsidiary) were to be consolidated on a line-by-line basis	See Financial Review and Valuation for detailed description	n/a	n/a	Reconciliation provided in Financial Review and Valuation Update
Ongoing Charges Ratio	In accordance with AIC guidance, defined as annualised ongoing charges on portfolio basis (i.e. excluding investment costs and other non-recurring items) £11.4m divided by the average published undiluted net asset value in the year £1,142m	Used as a metric in the investment company industry to compare cost-effectiveness	1.02%	1.00%	Discussed in Financial Review and Valuation Update Reconciliation of expenses used in ongoing charges calculation £'m   Fund expenses (income statement)           11.8 Less Company expenses excluded from definition of ongoing charges (0.5) Add Holdco expenses included in definition of ongoing charges             0.1 A Total annualised ongoing expenses           11.4 B Average NAV (includes March 22, Sept 22 and March 23)      1,119.2 Ongoing charges (A/B) 1.02%
Portfolio Valuation	The fair value of all investments in aggregate that are held directly or indirectly by Holdco	It provides relevant information of the value of the underlying investments held indirectly by the Company from which it is ultimately expected to derive its future revenues.	£1,100m	£913m	Reconciliation provided in Financial Review and Valuation Update
Cash on Portfolio Basis	Cash at bank of the Company and Holdco	To provide relevant information to shareholders of the Company's ability for new investments, working capital and payment of dividends	£65.7m	£170.9m	Reconciliation provided in Financial Review and Valuation Update
Investment cash inflow from the portfolio	Cash received from the portfolio investments at Holdco during the period	This provides shareholders with a metric that allows for tracking the Company's performance year on year	£85.1m	£64.7m	Referred to in Financial Review and Valuation Update
Dividend cash cover	Operational cash inflow from investments into Holdco less fund expenses in the Company and Holdco, divided by dividends paid to shareholders	Provides a metric for the level of cash generated enabling the Company to pay dividends to shareholders	1.2x	1.1x	Net cash inflow (portfolio basis) divided by dividends paid in Statement of Changes in Equity
Cumulative excess cash cover	Excess cash inflow from investments net of dividends paid to shareholders, on a cumulative basis since IPO	Provides a metric for the number of times the Company can pay dividends to shareholders	£29.2m	£19.1m	Referred to in Financial Review and Valuation Update
Gearing	Consolidated outstanding debt at Holdco and investment level (£361.0m) divided by NAV at the year-end (£1,125.4m)	To indicate the Company's direct and indirect exposure to debt obligation.	32%	34%	Referred to in the Chair's Statement and the Investment Manager's Report
Operational Cashflow	Cash inflow from investments net of operating and finance costs	Used in dividend cash cover calculation	£71.4	£52.9	Referred to in Financial Review and Valuation Update
Rebased Valuation (Portfolio basis)	Portfolio Valuation brought forward, plus new investments (including transaction costs) during the period less cash from investments.	Used to derive the fair value movement of the portfolio.	£1,068.6m	£788.6	Referred to in Financial Review and Valuation Update